Estate Group update: Do businesses need a Will?Oct 11, 2019
Businesses do not need a Will per se, but they do need a business agreement such as a buy/sell agreement, a shareholders agreement or a business succession deed of agreement, to deal with the contingencies of incapacity and death of the business owner(s).
Importance of a business agreement
While the name of the agreement may vary, the purpose of the agreement is fundamental for the successful transfer of an owner’s interest to their partners, or child/children or a family member/related party in preference to family members.
A business agreement should capture what is to occur on death, incapacity or trauma…and, more importantly, the allocation of the responsibilities
for how the transfer is to occur, how it is to be funded and the steps to occur to move forward — keys aspects can be dealing with the formalities of the change of ownership, governance requirements and exit arrangements.
The business agreement should also capture what happens if there is a voluntary exit, an insolvency of a party or a material breach of the agreement itself.
What are the benefits?
The benefit of such arrangements is a smooth transition when the worst occurs).
It avoids conflict between family members (often siblings), and the uncertainty that can arise from years of undocumented business dealings, financial arrangements or promises (i.e. between a parent and one child). It also ensures that proper consideration is received for the outgoing business owner’s equity, which can then be used to satisfy other moral obligations such as in favour of the spouse, children or in a blended family situation, all of the above.
Key aspects of a business agreement
Key aspects include adequate funding arrangements (insurances), addressing loan accounts and any tax complications and transfer duties that may be applicable. A collaborative approach with all trusted advisers is key to this process.
Be on the front foot
Family business disputes on death or incapacity are costly, damaging and avoidable.
To avoid the cost and conflict that may flow on from the incapacity or death of a business owner, it is our advice to clients to ‘be on the front foot’ in engaging in discussions with those involved in the business and those who are not.
It is well-worth the time and money spent on preparing a business succession deed to avoid the potential hundreds of thousands of dollars in costs of litigation afterwards.
If you need advice on, or assistance with, planning for business succession, please contact our Estate Group on (03) 8600 8885.
This Estate Group update was authored by Jennifer Maher, Principal Lawyer and Accredited Wills and Estate Specialist.
Note: This update is a guide only and is not intended to constitute legal advice.