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

Related thinking

Private Clients| 03 May 2022

Do you have trust issues? Removal of beneficiaries

In the final part of our trust series, we look at removing beneficiaries from discretionary trusts.

Private Clients| 05 Apr 2022

Do you have trust issues? Varying the trust deed

In part three of our trust series, we examine varying trust deeds and some common issues we are seeing with the variation power.

Private Clients| 08 Mar 2022

Do you have trust issues? A beneficiary’s right to information

In part two of our trust series, we will explore what right a beneficiary has to access trust information, and the Court’s approach in recent years.

Private Clients| 18 Feb 2022

Do you have trust issues? Trustee discretion

Over 700,000 – that’s the number of trust structures in Australia. These essential tax planning and asset protection tools have become an integral part of everyday practice for professional advisors.