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What is Business Succession and How Can SA Estate and Succession Lawyers Help?

Business succession ties in with the general succession and legacy planning of the work SA Estate and Succession Lawyers focuses upon. When developing estate plans for individuals it is equally important that we develop estate and succession plans for the business interests of our clients to ensure that they have adequately planned for and covered off all aspects of the future of their business if they were to die, retire, sell, or transfer the business to someone else. Business succession can help ensure the continuity and sustainability of a business, as well as protect the interests of the owner, the employees, and the customers after you have died. It is an important part of your legacy. At SA Estate and Succession Lawyers we often find that clients will spend their lives building up their business and then initially want to prepare a Will as part of their estate plan that deals with their individual assets but not consider the bigger picture of what will happen to their business if they are gone.

Business succession can involve different aspects, such as:

  • Choosing a successor or a buyer for the business
  • Valuing the business and its assets
  • Structuring the sale or transfer of ownership
  • Preparing legal documents and contracts
  • Managing tax and financial implications
  • Communicating with stakeholders and resolving conflicts

Business succession can be complex and challenging, especially for small businesses that may not have a formal structure or plan in place. That’s where SA Estate and Succession Lawyers can play a vital role in assisting business owners with their succession planning. We can provide legal advice and guidance on various issues related to business succession, such as:

  • Evaluating different options and strategies for succession
  • Drafting and reviewing legal documents, such as wills, trusts, partnership agreements, buy-sell agreements.
  • Negotiating and facilitating the sale or transfer of ownership
  • Ensuring compliance with relevant laws and regulations
  • Protecting the rights and interests of the parties involved
  • Resolving estate or inheritance disputes and litigation that may arise during or after the succession process.

To see how SA Estate and Succession Lawyers can help with business succession, let’s look at two practical examples: a farming family example and a non-family commercial business example.

Farming Family Example

Suppose a farming family owns a large property that has been in their family for generations. The parents are nearing retirement age and want to pass on the farm to their three children. However, only one of their children is interested in continuing the farming business, while the other two have pursued different careers. How can the parents ensure a fair and smooth transition of their farm to their children?

One possible solution is to use a buy-sell agreement. A buy-sell agreement is a legal contract that specifies how a business or a share of a business will be sold or transferred in certain situations, such as death, disability, retirement, divorce, etc. A buy-sell agreement can help prevent disputes among co-owners or family members by establishing clear rules and terms for succession.

In this case, the parents can enter into a buy-sell agreement with their children that stipulates that:

  • The child who wants to continue the farming business will buy out the shares of the other two children at a predetermined price
  • The parents will retain some ownership or control over the farm until they pass away or decide to sell their shares
  • The parents will provide financial support or assistance to the child who takes over the farm
  • The other two children will receive other assets or compensation from the parents’ estate.

A lawyer can help draft and review the buy-sell agreement to ensure that it reflects the wishes and interests of all parties involved. A lawyer can also advise on how to value the farm and its assets, how to structure the payment and financing options, how to minimize tax liabilities, and how to deal with any potential conflicts or challenges that may arise.

Another possible solution is an in life Family Agreement that can set out how all parties will pass on their interest in the business and when. Often these agreements will annex and therefore lead to the execution of proposed new Wills and Enduring Powers of Attorney, trust variation deeds and deeds of retirement and appointment, property subdivision arrangements, loan agreements and deeds of acknowledgement of debt.

Farming Land needs to be carefully dealt with in any succession plan because the value of the land is usually very substantial. Care must be taken to ensure that Stamp Duty, Capital Gains Tax and any concessional tax treatment is fully considered.  This means that at SA Estate and Succession Lawyers we will often work collaboratively and closely with our clients’ accountants and financial advisors when engaging in business succession planning.

Commercial Example

Suppose a commercial company has four partners who own equal shares of the business. The company has been successful and profitable for many years, but one of the partners decides to retire and sell his share of the business. The remaining partners want to buy his share, but they don’t have enough cash or credit to do so. How can they secure the funding and complete the transaction?

One possible solution is to use a buy-sell agreement with an insurance policy. An insurance policy is a contract that provides financial protection or compensation in case of certain events, such as death, disability, illness, etc. An insurance policy can help fund a buy-sell agreement by paying out a lump sum or regular payments to the seller or buyer of a business or a share of a business.

In this case, the partners can enter into a buy-sell agreement with an insurance policy that stipulates that:

  • The retiring partner will sell his share of the business to the remaining partners at a predetermined price
  • The remaining partners will purchase an insurance policy on the retiring partner’s life
  • The insurance policy will pay out a death benefit to the remaining partners in case of the retiring partner’s death
  • The remaining partners will use the death benefit to buy out the retiring partner’s share of the business.

SA Estate and Succession Lawyers can help draft and review the buy-sell agreement and work closely with your insurance broker or financial adviser to ensure that appropriate insurance arrangements marry in with the legal documentation SA Estate and Succession Lawyers will also work closely with your accountant to advise on how to value the business and its shares, how to optimize tax benefits, and how to handle any legal issues or disputes that may arise.

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