Business Succession

 
For owners of businesses, it is important to consider what happens on death or incapacity.

For individuals owning a business with other individuals, a buy-sell agreement (usually coupled with appropriate insurance) is recommended. The buy-sell agreement allows owners to set out how their interests will be dealt with, which avoids involving the deceased or incapacitated owner’s beneficiaries in the business. Instead, that owner’s interest is paid out to their estate, usually with insurance proceeds. Ideally, the agreement is used with a shareholders’ agreement (or partnership agreement).

For businesses owned and operated by a company, a shareholder agreement (and a buy-sell agreement) is recommended. The shareholder agreement permits the shareholders to agree on key arrangements between themselves, such as the right to appoint directors, changes to share class rights, voting rights, dispute resolution and managing exits (by individual shareholders or a sale of the business or a majority of the shares).

For individuals with a family business who have had children enter the family business, or who have a business they are considering selling to (or passing control to) their children, the process should be structured. Ideally, all family members should understand and agree the plan. We can help facilitate these family discussions to agree on a strategy then prepare documentation to enact it.

For individuals with trusts or entities holding family businesses, a bespoke family agreement may be appropriate. These agreements provide a clear framework for the operation and future of trusts and businesses held through those trusts on the death of key family members. The agreements vary greatly but often cover matters including:

Control

  • who can and cannot act as a director
  • what happens on death or incapacity of a director

Decision-making

  • setting protocols for key decisions
  • acquisitions or sales over a certain dollar value
  • sale of the business/key assets
  • hiring key staff

Distribution policy

  • minimum distribution levels
  • how distributions are to be made
  • when distributions can be postponed

Share transfers

  • who can receive a transfer of shares

Death of descendants

  • Can a child or partner of the deceased become involved in the business

Exit strategies

  • What happens if a family member wants to sell ‘their share’ in the business.

Key contact

Emma Woolley

Partner & Head of Family Office Advisory

Emma has extensive experience advising clients in estate planning/administration, succession, trust structures and disputes.

Related thinking

Private Clients| 07 May 2024

Trusts running out of time?

We explore the issue of trusts reaching their vesting date and the potential of extending it.

Private Clients| 23 Apr 2024

Were you born in the UK or own UK assets? Inheritance tax and succession planning tips

Were you born in the United Kingdom (UK) or own assets in the UK? Without proper UK tax planning advice, you could end up paying more than necessary in UK inheritance tax.

Private Clients| 04 Mar 2024

US citizenship or assets? Don’t risk excess estate tax on your death

We delve into how being a US citizen affects taxes, cover transfer tax considerations for both US and non-US citizens and provide practical tips for reducing tax liabilities.

Private Clients| 23 Feb 2024

How to obtain executor commission?

Executors’ commission involves an executor of a Will obtaining remuneration for the administration of a deceased’s estate.