Succession Planning for Your Business
Why Plan for the Future of your Business?
Seven in ten Australian businesses are family owned, and the Australian Small Business and Family Enterprise Ombudsman describes succession planning as one of the biggest challenges they face.
Without planning on how to deal with their interest in the business, an unexpected illness or death of a partner or shareholder can lead to disputes:
- Who acquires the interest?
- What is the value of the interest?
- How will the business continue to operate?
Surviving owners can face uncertainty as they deal with inexperience or conflicting interests of the spouse (or family) of an incapacitated or deceased owner. Therefore business succession is best done pro-actively, with advice and planning, while all the business owners are able to make such decisions.
The Buy/Sell Agreement
A buy/sell agreement is one of the best ways to secure a family’s financial future by enabling the business to continue. Basically, it is a legally binding document entered into by owners (whether partners or shareholders), who usually also obtain life insurance policies paid for by the business. It is designed to provide the mechanisms and funding to implement a business succession plan in case of the disability or death of an owner.
The agreement gives the surviving owners the ability to acquire the disabled or deceased person’s interest in the business and sets out the method for determining the purchase price (usually equal to the life insurance proceeds). By doing so, the agreement ensures the continued operation and control of the business by the surviving owners.
You should have a buy/sell agreement if you’re in business with other people and you want:
- your family to receive a fair value for your share and to be treated fairly if you die or are incapacitated;
- the surviving owners to continue operating the business after your death or incapacity;
- to ensure that you have the necessary funds and you can easily obtain the interest of a deceased or incapacitated owner;
- to elect whether to continue operating the business with the involvement of the spouse or family of an incapacitated or deceased owner.
Power of Attorney and Wills
If you have a buy/sell agreement, you should also consider a Power of Attorney and Will. You must ensure that your Will does not contradict the agreement, which is done by inserting provisions in your Will setting out the agreements to be implemented by your executor. You should also consider a Power of Attorney, which operates during your lifetime (unless revoked) and allows a trusted person to make decisions on your behalf if you are incapacitated.
Manage the Risk to Your Future
Without planning for the future of your business, you risk unexpected injury or death jeopardising everything that you have been building. You can manage that risk by having a documented business succession plan, which will ensure the future of your business.
Planning to hand the business on? See Business Succession Planning in Queensland.
Want my view on your own situation?
Book an initial consultation: up to two hours with me by phone for a fixed fee of $1,650 (including GST), then a short written note of my advice and next steps. If my conflict check means I can't act, I'll refund your fee in full. To check anything first, email
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(07) 3103 3199.
Joe Kafrouni, Accredited Specialist in Business Law, Kafrouni Law
Disclaimer: This article is general information only and is not legal advice. Before acting on it, get advice on your own circumstances. To the extent the law allows, Kafrouni Law accepts no liability for any loss arising from reliance on it. This article is the copyright of Kafrouni Law.
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