Business Succession Planning
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A key component in any business is the agreement between all owners of the business and their entities. A business succession plan is an agreement between all the principals of a business, so that if one of the principals dies, becomes totally or permanently incapacitated or critically ill, then the outgoing principal will sell, and the continuing principals or their associates will buy the outgoing interest.
Of course a prime focus of this process is to ensure that in the event that there is a loss of a key person, there is a funding process in the form of insurance or assets to satisfy the appropriate value placed on those shares (which pass to the surviving members of the business). The payment is placed in the hands of his family in the most cost and tax effective manner, minimising such areas as capital gains and other time consuming processes.
Also to be considered are other strategies and agreements to be put in place to address a sale of the business, the closure of the business, or the breakdown and rights of purchase of existing shareholders/unitholders in a buy out situation.
To enable appropriate assessment of the requirements and to ensure accurate advice, your advisers will require sight of:
- A full breakdown of your existing structures with diagrams identifying ownership and the process of distribution if trusts are concerned.
- A copy of all trust deeds and constitutions for incorporations.
- A copy of any property, shares or insurance policies relevant to the funding of this agreement.
A well constructed business succession plan also addresses issues such as:
- Valuing the business.
- Determining the principals' exposure to the business in the form of debt and personal guarantees.
- Anticipating the capital gains tax assessment.
- Deciding when the business succession will operate, and addressing contingencies.
- Determining the time of disposal which will crystallise the parties' capital gains tax liabilities.
- Taxation treatment of the proceeds.
- Integrating the business succession plan into the principals' overall business and personal estate planning (Will).
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