l ega l
business
succession
Bryan Pickard
Greenhalgh Pickard
Solicitors and Accountants
L
ike death and taxes, it is inevitable that
one day you will leave your business.
You may decide to retire, sell out or
are forced to leave due to health. Business
succession is about an orderly passing over
of the control of a business. There are plenty
of books and articles on the subject. An
internet search will provide you with links
to numerous articles and planning tools,
some provided by government agencies.
The subject is too big for me to cover in the
scope of this article, so I will try to paint a
broad picture and highlight a few points.
Start early
Business succession is about planning and
the sooner it’s done, the better. The first step
is to focus on your objectives. Do you intend
to sell the business or pass it on? You also
need to identify various contingencies that
can arise. For example, if you die, become
incapacitated or there is a dispute with other
owners. As I have said, there are plenty of
planning articles and tools on the web to
help you with this.
Passing over the business
There are four main ways that you can pass
on your business:
• Transferring the business to a family
member.
• Selling the business to management or
employees.
• Selling the business.
• Leaving the business in your will.
You should do these things before you
decide on how you will pass on the business:
• Talk to those people who will be affected
20 Australian Window Association Summer 2015
by your decision – your family, employees
and your professional advisors.
• Value the business - it doesn’t matter
whether you are selling, transferring or
making a bequest, you need to get a value
of the business. A price needs to be set
for a sale and a transfer. The value has
relevance for taxation, e.g. capital gains
tax (CGT), small business tax concession
on retirement and transfer (stamp) duty.
• Consider the present structure of the
business and whether it is suitable for
achieving the result you want. What
are the limitations if you operate the
business as a sole trader, partnership,
company or through a trust? Consider
the tax implications of making a change in
structure. A change in structure will be a
CGT event and, depending on the State
you are in, a transfer will attract transfer
duty.
Passing the business to your
family
This can be done as a sale, gift or a
combination of both. You will need to
consider how you get paid. How is control
of the business going to pass? Will there be
a gradual transfer? What about disputes in
management? How will they be resolved?
You should consider life insurance to provide
the funds to complete a buy-out if someone
dies. Consider also whether profit sharing
could be used as a means of financing
all or part of a buyout. Some of the legal
documents you need to consider are:
An agreement that sets out the terms of
the sale/transfer which includes how it
will happen, when it will happen and what
happens if there is a dispute. Where the
business is operated by a company, you
should have a shareholders agreement
covering these things.
If you operate the business through a
trust, consider who is the current trustee –
individual or company. Consider how and
when the trustee will change and whether
there needs to be amendments to the
trust deed. Alternatively, would it be more
effective to transfer the business to a new
company or trust? Remember, the trustee is
not the owner of the business.
Consider including in your will provisions
for dealing with your interest in the business
if you die before the transfer is completed.
Also consider a power of attorney to appoint
someone with business experience to
look after your interest until the transfer is
completed.
Transfer to employees or
management
Consider how this will occur and whether
your business structure will be effective. If
a partnership, does the agreement cover
appointment and retirement of partners? If
a company, does it have share classes that
permit you to distinguish rights attaching to
the shares such as voting and participation
in dividends. Some legal documents to
consider are:
• A sale agreement.
• An employee share option plan.
• A shareholders agreement.
• A service agreement, if you are going to
continue working for the business.
Selling the business
Here you need to consider what you are
selling. If the business is operated by a
company, are you selling just the business or
the company as the owner of the business?
Where you own the business premises, is it
being sold as well? Is the business in a form
that can be sold as a going concern for GST?
Is intellectual property being sold or are
you retaining it? Where you have licences,
you will need to know the owner will let you
assign them to the new owner. The legal
documents will vary based on what you are
selling. Some documents are: