Don’t wait: think about your business exit plan now!

Whether you are just starting out or considering moving on, it is vital to prepare your business succession plan early.

If you wait until you are either ready to retire, or move on to another business, you might find that a failure to plan has significantly impacted your ability to move on to the next stage in your life.

There are different ways to plan your exit from your business. This will turn on the particular structure you have adopted.

Here are some things to consider:

1. The Successor 

One of the first considerations will be to whom you want to leave your business. This may be a family member, a business partner or an employee.

 Consider the legal arrangements around this. For instance, is there a pre-existing Shareholders’ Agreement or Buy/Sell Agreement in place? This may also the impact your business exit plan.

 For example, you might be a co-director in a company that imports and sells particular goods. If you leave your share in the business to your daughter, the remaining director may not be willing to work with them and this may ultimately sink the business. If a shareholder agreement is in place, then the partner may be required to purchase your share from your daughter. 

2. Complete or Partial succession 

You should consider if you want to exit your business completely or just from the main day to day running of the business. 

If you want to sell your shares entirely and resign as director, are there any legal arrangements in place affecting how you should do this?

For instance, if you still want to have a partial interest, do you have a Shareholder’s Agreement in place governing when dividends are to be paid to the shareholder? Are shareholders in your company required to be actively engaged in the business, or can they be passive?

3. Death or Permanent and total disability

We strongly encourage our clients to consider what would happen to their share in the business if they suffered a permanent and total disability or were to die. 

A Buy/Sell Agreement in place will ensure that the remaining business partner is compelled to purchase the shares of the exiting partner from their estate and that the estate is compelled to sell to the remaining partner. This can often be funded by an insurance policy. 

If you have further questions, please contact frank@franklaw.com.au

This is not legal advice.