At Marino Law, our clients that own businesses or interests in same often tell us that it is difficult enough to find the time to prepare a personal estate plan, let alone the time required to implement a succession plan for those businesses.
Some tell us that they do not wish to think about morbid topics such as death, others tell us that the task appears too complicated and some others even turn a complete blind eye, assuming that the business will carry on and be dealt with by those that are left behind. This is not the case.
Where a business owner passes away unexpectedly and without a proper business succession plan, the interest of that affected person often passes (by succession) to their spouse or children. This means that a significant share or interest in the business could pass to a person or class of people who may not have been groomed to step into the business and whom have no experience or desire in the operation of same.
In that case, decision-making would be split between the surviving business owner(s) and one or more inexperienced family members with no substantive, financial or operational knowledge of the business.
This can create a minefield of problems for the survival of the business, both operational and long term, including:-
- Uncertainty – particularly in management and operations;
- Disputes between owners, including with inexperienced estates;
- Business interruption (or failure) through loss of profits; and
- Potential loss of clients to competitors.
A proper succession plan may avoid such problems by setting out a structured and a regimented process for dealing with the death, disability, retirement or removal of business owners or key personnel.
In the case of death or disability, it is common for remaining business owners to try and buy out the interest of the affected owner, rather than continue the business with inexperienced persons whom acquire an interest through inheritance.
However, as the death of a business owner has the tendency to occur suddenly and unexpectedly, the remaining business owners may not have the financial means readily available to buy out that interest. A business succession plan prepared by Marino Law can address this and allow for funding to be obtained through the use of business succession insurance policies specifically designed for certain triggering events, such as death, trauma or total and permanent disability, with the insurance payout proceeds being utilised to payout the value of the affected owner’s interest in the business. This is what is known as a “buy-sell agreement”.
By implementing a business succession plan early, not only are business owners ensuring the longevity of the business, they are also dictating the terms of any business succession practices, which allows them to retain control over the entire process.
Our team of commercial, property and estate planning lawyers are highly experienced in business succession and will assist you in developing a tailored business succession plan which is specifically designed for your particular business. In doing so, we will consider the following:-
- The entity and structure of the business and assisting with any additional structuring requirements (for example, the establishment of any trusts, preparing, varying or amending company constitutions or shareholders agreements etc);
- In consultation with your accountant, arrive at a suitable method for calculating the value of the business and each business owner’s share in same;
- Provide or advise upon options for:-
a) Sourcing the funds required to payout the interest of any owner that is affected by death, trauma or total and permanent disability (usually in consultation with an insurance broker); and
b) Dealing with any shortfall from any insurance payout;
- Providing strategy and recommendations for business succession planning and preparing the necessary documentation to implement same; and
- Assisting business owners with their own personal estate plans, which tie into and compliment their business succession plans.
We can also assist with the administration of any business succession requirements or any disputes in relation thereto, upon the death or otherwise of any affected business owner.
A structured business succession plan allows business owners to focus on other tasks, such as the expansion of the business. In this way, a business succession plan promotes prosperity and potentially business growth. Naturally, family-run businesses may benefit even further by preserving harmony within the family.
There are also a wide variety of tax benefits that a properly prepared business succession plan can achieve, depending on the type of entity conducting the business. Marino Law works closely with accountants, tax professionals and financial advisors to ensure that the business succession plan will minimise any tax or duty payable on the death of a business owner and ensure that maximum value is received by their intended beneficiaries.
Business succession planning is about how your labours and efforts will continue, after you are no longer around or have capacity to direct them. To this end, there are a wide variety of factors that must be considered when implementing a proper business succession plan. At Marino Law, our lawyers are able to streamline this process in plain English, so that your attention may remain focused on the growth of your business both now and into the future.
Please do not hesitate to contact us today should you require any further information on business succession or if you wish to implement your own business succession plan.