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Business succession plans deliver positive outcomes

If your business partner died:

  • Would your business survive?
  • Could you happily continue the business in partnership with the beneficiaries of your deceased partner’s estate (usually his or her spouse or children)?
  • Could you afford to buy your deceased partner’s interest in the business?
  • How would you agree on the value of your deceased or partner’s interest in the business?

The above questions concern only some of the challenges you may face on the death of your business partner.

The failure to plan for such a calamity often results in poor outcomes including.

  • the failure of the business or its sale at an undervalue;
  • financial hardship for the surviving business partner and the family of the deceased partner; and
  • disharmony between the surviving business partner and the family of the deceased business partner.

A strategy to improve the chance of your business surviving the death of your business partner is to enter into a buy sell arrangement with your business partner whereby:

  • the business takes out life insurance policies over you and your business partner; and
  • on payment of the life insurance proceeds to the deceased business partner’s estate, the interest of the deceased partner is transferred to the surviving business partner for a nominal amount.

Whilst the benefits of a business succession plan depend on the precise set of circumstances, a buy sell arrangement significantly improves the prospects of the business successfully continuing as:

  • the surviving business partner can continue running the business without the burden of buying out the deceased partner or operating the business with the deceased business partner’s (often inexperienced) family;
  • the surviving business partner cannot be forced to sell the business as once the insurance proceeds are paid to the deceased business partner’s estate, the surviving business partner becomes the sole owner of the business;
  • the deceased business partner’s estate is fully compensated for the deceased business partner’s interest in the business on receipt of the life insurance proceeds from the policy over the life of the deceased business partner.

For a consultation in relation to buy sell arrangements and other business succession strategies designed to meet your specific requirements, please contact the business law team at South Geldard Lawyers on 4936 9100 – experienced business lawyers delivering outcomes.

It is important to seek specific advice regarding your circumstances as this fact sheet provides general information only and does not constitute legal advice.

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