Questions you need to think about!

  1. Does the deceased family go into partnership with the other owners?
  2. Is the deceased family paid out?
  3. What is the value of the business and who determines that value?
  4. How is the debt of the business paid, what happens the director’s guarantees?

These simple but important questions demonstrate the need to discuss Business Succession Planning and the importance of a Business Will for each business.

Business Succession Planning

The key objectives for effective business succession planning include

  1. Protect the on going continuity of the management and control of the business
  2. Protect the on going financial viability of the business
  3. Protect the personal requirements of owners
  4. How will the transfer of ownership be funded?
  5. What are the Tax Considerations that need to be addressed?
  6. How are business debts & personal guarantees dealt with?
  7. Ensure a stress free and smooth transition for all – staff, family & investors

What is a Business Will?

A Business Will is an agreement that usually takes the form of a buy and sell option. It ensures the smooth transition of the ownership of a business on the event of a death, total and personal disablement or trauma of an owner.

Funding for a buy out in a Business Will is critical, and is commonly achieved by appropriately held insurance policies. It is very important to ensure that expert advice is sought when taking out the policies, so that Capital Gains Tax is not triggered unnecessarily.

Advantages of a Business Will

A properly structured Business Will, will have the following attributes:

  1. It will specify responsibilities, obligations, capital requirements, funding and management
  2. It will contain compulsory buy/sell provisions
  3. It avoids uncertainty for business & family as the process is structured and seamless
  4. It allows for a smooth transition of ownership
  5. Provisions for funding by life insurance relieves pressure on the business and continuing owners
  6. It has an agreed formula to value the business on a trigger event
  7. It contains dispute resolution provisions

Implementation

Implementation is critical for the Business Will.  The following procedures are recommend:

  1. Conduct an Owner’s Meeting to reach agreement on critical terms like method of valuation, times for payment etc.
  2. Value the business to determine the level of insurance needed.
  3. Determine who will own the insurance policy and receive benefits upon death. Ensure the Business Will and the policies are tax effective
  4. Determine if other insurances are needed such as key person, revenue, and income protection.
  5. Inform families to make sure they understand the benefits, implications, procedure etc.
  6. Obtain insurance policies quotes
  7. Finalise and execute the agreement
  8. Review if the have existing Wills as they will more than likely need to be updated

 

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