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:
- who can and cannot act as a director
- what happens on death or incapacity of a director
- setting protocols for key decisions
- acquisitions or sales over a certain dollar value
- sale of the business/key assets
- hiring key staff
- minimum distribution levels
- how distributions are to be made
- when distributions can be postponed
- who can receive a transfer of shares
Death of descendants
- Can a child or partner of the deceased become involved in the business
- What happens if a family member wants to sell ‘their share’ in the business.
Private Clients| 14 Oct 2021
In part 3 of this series, we consider why your client may appoint a professional as their executor, the executor’s entitlement to remuneration and considerations when appointing professional executors.
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In the second instalment of our probate series, we consider potential issues for executors once they embark on the estate administration process.
Private Clients| 18 Aug 2021
Dealing with the estate administration process can be a difficult time, especially after the recent loss of a loved one. In the first article of our series on probate, we outline the duties of an executor.
Private Clients| 09 Jun 2021
The Victorian Government has recently made many of the temporary processes and procedures implemented in response to COVID-19 permanent, with the commencement of the Justice Legislation Amendment (System Enhancements and Other Matters) Act 2021 (Vic).