Business succession planning involves considering and implementing appropriate strategies for the transfer of management and control of a business from one person to the next. It is also intended to ensure that a business can continue to operate and prosper regardless of the person who is at the helm of the organisation or operation.
A Business Succession Plan may be used to deal with the premature disruption of an enterprise, such as the unexpected illness of a business owner, or in circumstances where an owner retires, or a family business passes to the next generation.
Whether exiting a business voluntarily or due to unforeseen circumstances, a good Business Succession Plan will deal with uncertainties, minimise disruption to retain value in the business and entity, address taxation and duty issues and foster a smooth transition from one owner to the next.
Who should make a Business Succession Plan?
Business succession should be considered by anyone with a:
- Small, medium or large business;
- Family business; or
- Privately-owned business.
Ideally, a Business Succession Plan should be considered early in the life of the business and revised as the business matures and circumstances change.
We believe that planning to exit a business can be just as important as planning for its start-up.
What should it Include?
When planning for the future of the business, it is important to consider what issues could arise in the longer term, so that you can identify ways to avoid them early on.
A tailored and appropriate Business Succession Plan should cover:
- Ownership structures of business assets;
- Timing when control is to pass from the current owners to the next;
- Dealing with potential conflicts; and
- Ensuring a smooth transition so as to not affect the operational aspects of the business.
At Tetlow Legal we take a holistic approach to business succession and believe that any plan should be supplemented by a carefully considered personal estate plan for each of the business owners which complements the Business Succession Plan and which may also incorporate appropriate insurances and shareholder or partnership agreements.
Insuring against the risks associated with commercial activities is an important consideration in any business.
Business assets and property can be insured for replacement or other agreed value if they are destroyed or lost.
Public liability insurance and professional negligence insurance protects the business and its members for losses sustained by third parties.
Personal insurances such as income protection provides security in the event of illness and accident.
Buy-sell insurance can provide funding on the loss of a business owner through death, total and permanent disability or trauma. The payment enables the continuing owners to acquire that owners share using insurance proceeds, without which the continuing owners may be unable to fund a buy-out and end up in dispute with the exiting owner or their representatives.
Shareholder, Unitholder and Partnership Agreements
Shareholder, unitholder and partnership agreements are essential for managing the relationship between the respective owners.
These agreements constitute contracts between shareholders, unitholders and/or partners, and set out the rights, obligations and liabilities between the parties and the management policies of the business. They will also include provisions to deal with a range of contingencies that could threaten the ongoing operations of the business if left unresolved.
Provisions to deal with deadlocks and disputes and the transfer of business interests, pre-emptive rights, drag-along, tag-along rights, mandatory sale events, share valuation methods and non-compete clauses should be considered in any agreements.
Good business succession planning requires a comprehensive approach, considering the nature and structure of the business, the personal circumstances and respective ages of its owners, the capabilities of the owners, funding, staffing and taxation issues.
Tetlow Legal specialise in preparing succession documentation, including:
- Shareholder Agreements;
- Unitholder Agreements;
- Partnership Agreements;
- Buy-Sell Agreements;
- Succession Deeds;
- Powers of Attorney; and
- Superannuation Binding Death Benefit Nominations (where applicable).
We work collaboratively with accountants and other advisors to ensure an efficient and effective succession plan.