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28 October 2015

Business Succession Planning – The Why and the How

Cara Hawkins

Senior Associate

When you are in a business partnership with another person, or a group of people, it is important to consider what might happen to your business if any of you choose to leave, become ill, or even pass away.

If you operate your business under a proprietary limited company, not everyone knows that it is important to have a “Will” for your company, to make sure that it passes to the right people when you die.

Have you thought about the scenario where you and your business partner are both directors and equal shareholders in your company, what would happen if your business partner passed away? Without certain legal agreements in place, you cannot control what happens to your business partner’s half share of the company, and you might end up owning it and running it with his or her spouse, children or the executors of their estate for a period of time.

It can then become very difficult to keep the business running smoothly in this scenario.

A business succession plan considers this above scenario and can put into place legal agreements which can:

  • provide pre emptive rights so that you have the first right to purchase your partner’s share in the company if he or she passes away or chooses to exit the business;
  • provide for insurance funded buy sell arrangements, where if any of your business partners become permanently disabled, pass away or suffers a defined trauma event, then the insurance payout can cover the cost of buying that business partner’s share in the company.

The two most common agreements which we can prepare for your company to take into account these types of risks include a Shareholder’s Agreement and also a Buy Sell Agreement.

Contact one of our commercial lawyers to obtain a quote today

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