Business succession planning is often overlooked when you’re writing your Will. 

Without a clear plan in place, there could be serious consequences for your business, your stakeholders, and your estate.

What happens to your business after your death depends heavily on how your business is structured. Let’s look at the most common business structures, and how you should be planning ahead.

Sole trader:

If you’re operating as a sole trader, your business is legally indistinguishable from you as a person. After you die, all business assets – and debts – become part of your personal estate. Your executor will become responsible for managing any business assets, including whether to sell the business or wind it down. It’s important you choose the right executor. You need someone who knows your business and feels comfortable dealing with business matters.

Partnership:

If there’s no partnership agreement in place, once one person dies, the partnership may be dissolved, leading to a sale or asset liquidation. The surviving partners may also be personally liable for tax obligations and employee entitlements.
If there is a partnership agreement in place, this should cover what happens in the result of someone’s death. This could mean remaining partners buy out the shares of the person who has died, and it should also detail how the deceased’s partner’s shares are valued.

Companies:

A company is a separate legal entity and does not cease to exist after the death of a shareholder or director.
For shareholders, any shares owned by the person who died become part of their estate and can be passed on to their beneficiaries.
If there’s no shareholder agreement in place, beneficiaries may have to negotiate with surviving shareholders, and/or be forced into a sale. A well-drafted shareholders agreement can ensure there are guidelines in place for valuation and sales, allowing the beneficiaries to receive their payments, and for the surviving shareholders to take control of the company.
On the death of a company director, the company constitution should outline the way forward. Good planning when founding a company is essential and can help avoid unnecessary drama further down the line.

Trusts:

The Trust deed should specify the process for appointing a new trustee upon the death of the current trustee. Some Trusts have an “appointer role”, who has the power to appoint or remove trustees. If the appointer dies, the Trust deed should also outline who becomes their replacement.

Just as there are businesses of all sizes and shapes, so there is no one-size-fits-all approach to business succession planning.

Getting the right advice and making sure your plans are secure and well-drafted is essential.

The business and commercial law experts at Bickell & Mackenzie, alongside our Wills and Estates team, are perfectly placed to make sure your wishes will be honoured. We will work to make the transition for your family as smooth as possible.

To make an appointment, contact our office today on: (07) 3206 8700 or email: info@bimalaw.com.au