Business Succession Planning

Planning for your Business

Too many business owners forget to have a succession plan.

In the event of death, incapacity, retirement or simply when you would like to move on, a business succession plan (BSP) will:

  • Avoid disputes between business owners, their families and executors of deceased estates
  • Determine how the exiting business owner’s interest will be valued
  • Provide the continuing business owners the opportunity to gain control of the exiting business owner’s interest
  • Put in place the funding mechanism (usually insurance) to enable the continuing owners to acquire the exiting business owner’s interest
  • Identify key people operating and managing the business

Implementing a BSP

BSP usually forms part of the estate planning process and often wills, powers of attorney and superannuation binding death benefit nominations are required in addition to:

  • Buy/sell agreements
  • Shareholders/unit holders/partnership agreements
  • Other deeds as required such as family trust deeds and amendments to existing deeds
  • Insurance

It’s important to keep plans and insurances up to date and amended as circumstances change.

BSP usually forms part of the estate planning process and often wills, powers of attorney and superannuation binding death benefit nominations are required in addition to:

  • Buy/sell agreements,
  • Shareholders/unit holders/partnership agreements
  • Other deeds as required such as family trust deeds and amendments to existing deeds
  • Insurance

It’s important to keep plans and insurances up to date and amended as circumstances change.

Case Study

Mark and Ken own and operate a boat chartering business which is owned by a private company, Blue Whale Boating Pty Ltd. Mark and Ken are equal shareholders in the company. Sadly, Mark dies unexpectedly in a boating accident.

Mark leaves a will gifting his whole estate to his wife Melinda and she inherits Mark’ shares. Melinda has no understanding or experience in running a boat chartering business and Ken offers to buy the shares. Conflict and tension soon erupts between Melinda and Ken as they are unable to run the business together. Ken offers to buy the shares but they cannot determine how the shares will be valued and Ken does not have the money to offer Melinda what she wants for the shares.

A business succession plan between Mark and Ken consisting of a buy/sell agreement and an insurance policy on Mark’s life would have provided Ken with the necessary funds and the ability to acquire the shares on Mark’s death. Melinda would have received cash rather than the shares and both Melinda and Ken would have been able to get on with their lives.