Business Succession Planning

Business succession planning can involve a mix of strategies to proactively mitigate risk, protect assets and lawfully minimise tax. It involves consideration of appropriate business structures, taking out adequate insurances, and using legal agreements to deal with contingencies such as the retirement or unexpected death or illness of a key business partner.

We work with a range of individuals and businesses including many family owned businesses to ensure appropriate strategies are in place to protect business and personal wealth, and that hard-earned assets are safeguarded in the face of life’s uncertainties. In doing so, we often collaborate with financial advisors and accountants to ensure a holistic approach is taken and that personal, financial and legal options are considered so as to best meet our clients’ needs.

Business structuring

Choosing the most appropriate legal structure through which an enterprise conducts its business activities can help to minimise personal liability and protect assets.

The incorporation of a company essentially separates the personal wealth and assets of its directors and shareholders from the associated risks of the company. The company is a separate entity and can enter into contracts, sue and be sued in its own right. Directors are not usually personally liable for company losses, provided they do not breach their fiduciary and statutory duties.

Shares between owners can be transferred without upsetting the external structure of the company, providing continuity of trading and asset ownership despite a change in shareholdings.

Trusts

Holding certain assets in trust can help protect them from claims by third party creditors, provide flexibility in the distribution of property and income, and achieve favourable tax outcomes.

The effect of a trust is to create the separation of the beneficial, from the legal ownership of property.

Trusts are complex structures and there are many different types of trusts. The deed creating the trust must be carefully prepared to ensure that the arrangement is compliant with relevant laws and avoids unintended stamp duty implications, with ongoing management being essential to ensure the objectives of the trust are met.

Insurance

Insuring against the inherent risks and potential loss associated with a commercial venture helps to ensure business continuity. Business assets and property can be insured for replacement or other agreed value, if they are destroyed or lost through fire, flood or theft. Public liability insurance and professional negligence insurance protects the business and its members for losses sustained by third parties during the course of the business’ activities.

In the event of an unexpected illness or accident, personal insurances such as income protection provides financial resources while a business owner is unable to work.

Buy-sell insurance

If a business partner dies, the business may face demands from that partner’s legal representative to freeze or sell assets to satisfy an interest claimed by the estate.

Buy-sell insurance can minimise the impact of losing a business partner by providing lump sum funding towards a partner’s share after his or her death, total and permanent disablement, or in the event of trauma, enabling the continuing owners to acquire that partner’s share.

Without buy-sell insurance, continuing partners may be unable to fund a buy-out and be forced to wind up the business or transfer the outgoing partner’s share to an unknown party. The business may also be subject to the unsolicited involvement of a legal representative or family member of the deceased partner.

Shareholder and partnership agreements

Shareholder and partnership agreements are integral for managing the relationship between the respective members or partners of a company or partnership.

These agreements constitute private contracts between shareholders or partners, and set out the rights, obligations and liabilities between the parties, as well as dealing with a range of contingencies that could threaten the ongoing operations of the business if left unresolved.

Shareholder and / or partnership agreements include provisions such as alternative dispute resolution clauses, deadlock breakers (where shareholders or partners have intractable differences regarding the management of the business), pre-emptive rights, drag-along, tag-along rights, mandatory sale events, share valuation methods and conflict and non-compete clauses.

When we work hard to acquire and build assets and personal wealth, it makes sense to invest in sound advice to ensure these are protected. Business succession planning requires a tailored approach with many practical, financial and legal issues to consider, unique to the nature of the business and its members.

If you need any assistance contact one of our lawyers at admin@donlanlawyers.com or call (08) 8344 6422 for a no-obligation discussion and for expert legal advice.​