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| 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).
Private Clients| 13 Apr 2021
The pandemic has resulted in significant global change, but it may also mean that it is time to have a look at the impact closer to home in relation to personal estate planning.
Private Clients| 07 Dec 2020
Changes to Queensland’s guardianship laws are now in force. The amendments, which came into effect on 30 November 2020, relate to the Guardianship and Other Legislation Amendment Act 2019 (Qld).
Private Clients| 19 Nov 2020
As 2020 nears to a close, advisors should note the impending 31 December deadline in NSW to exclude foreign persons as beneficiaries of discretionary trusts, to prevent these trusts from becoming foreign persons for the purposes of surcharge duty and land tax.