Business owners have usually worked hard most of their lives to build successful businesses and many family business owners hope to pass on their business to the next generation.
Family business succession maintains the strong connection between the two most important parts of a family business owner’s life: their family and their business. Successful business succession leads to a high level of satisfaction and significant wealth for the family.
However, problems often arise when family business owners do not thoroughly plan for the transition.
Carneys Lawyers’ succession planning lawyers work with families to plan the transition of business ownership and management, including the broader aspects of Wills and Estate planning. We regularly advise on and draft shareholders agreements, trust deeds, Wills and testamentary trusts, as well as liaising with other advisers for insurance planning and accounting advice.
What is family business succession?
Family business succession is the transition of the management and ownership of a family business to a future generation of family members. The planning process involves both management succession – being the transfer of control of the day-to-day management of the business – and ownership succession, which refers to the transfer of the equity interest in the business.
Planning for management succession involves arranging for the transfer of decision-making responsibilities to the new owners.
When planning the transfer of ownership of a business, Carneys Lawyers’ succession planning lawyers will work with you to determine:
- At what point will the transfer of ownership commence?
- Will the transition be immediate, or will it take place over a period of time?
- When will the next generation have ownership control?
- Who will hold equity in the business, and how will this equity be structured?
- How will the transfer in ownership be funded? Will the next generation obtain finance from a bank, of will the family fund the transfer?
- What are the tax implications? Is capital gains tax or any other tax payable?
- What is the best ownership structure for the new owners? Is it possible to improve the existing structure, taking into account the new ownership interests, tax and estate planning issues?
What are the other ways to transition or exit your business?
If transferring the business to the next generation is not the right option for you, there are other ways to exit the business.
Selling the business, transferring the business to employees or merging the business with another are all possible options which our succession planning lawyers will discuss with you.
For some business owners the best option to exit a business is to finalise all contracts, sell the assets of the business, pay all debts (including tax) and retain any surplus cash. Winding up the business may be the best option where the business in inextricably linked to the owner and there is very little goodwill.
A solvent winding up is only possible when the business can pay all its debts. If the business cannot pay its debts, it may need to consider a winding up in insolvency.
Business owners who act quickly when they realise their business is in financial difficulty have a range of options available to them to attempt to turn the business around. Not knowing there is a financial problem, or not acting when you discover a problem, can lead to liquidation being the only option.
If the business is operated by a company which becomes insolvent, liquidation will involve either the directors, a creditor of the business, or the Court appointing a registered liquidator to finalise the business’ affairs, sell all assets, pay creditors in order of priority and distribute any remaining surplus to shareholders.
Contact Carneys Lawyers’ succession planning lawyers today.