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Equity and Succession Planning
For You and Your Business


When we are in business, we can spend most of our time working in our businesses and little time working on our businesses.

Planning for you personally and your business should include equity and succession issues.

Equity and succession planning covers matters including bringing a new "partner" in to your business; you or a business "partner" exiting your business (by sale, death or disability); and the sale of your business. It is also relevant to insurances; superannuation and financing of your business and personal matters such as your Will.

The keys to good equity and succession planning are communication documentation and forward thinking. Remember the Boy Scout motto "Be Prepared".

COMMUNICATION

Any successful business requires good communication between business owners and their personnel, customers, suppliers and professional advisers.

Anticipating and agreeing how situations will be handled if they arise will reduce the risk of conflict and dispute later and provide mechanisms for resolution of disputes.

DOCUMENTATION

Businesses should document everything relevant to the business.

The relationships between business owners; the business and it's employees, contractors, customers, suppliers, lenders and others should all be agreed and put in writing.

Practices and procedures concerning your business (employment, occupational health and safety, manufacturing processes etc) should be documented.

Records of assets, leases, liabilities, insurances, borrowings, debtors, creditors, supply agreements, customer contracts etc should be maintained.

Your professional advisers can assist you with the negotiation and preparation of such documentation.

SOME LEGAL MATTERS

Structure - ensure you understand the structure of your business (company, trust, partnership, sole trader) and that it suits your purposes.
Documentation - record in writing the relationship between you and your "business" partners. This can be done by a partnership agreement, shareholders agreement or joint venture agreement. Such documents should include valuations provisions (how to determine the value of the business ) and "pre-emptive rights" provisions (i.e. procedures for existing "business" partners to be able to buy out the interest of another partner in defined circumstances and a mechanism for third parties to be able to join and become owners of the business).

Ownership - clearly record what is owned by your business. This notes the assets of the business and affect its value.

Confidentiality - protect your business' confidential information by having confidentiality provisions or agreements with employees, contractors, customers, suppliers, potential investors and potential purchasers.

Intellectual Property - business and company names, logos, brand names, practices and procedure are all intellectual property and valuable assets of your business. Consider protecting them by registration - as a business name, company name, trade mark, patent or design.

ACCOUNTING MATTERS

Structure - check with your accountant as to the most tax effective way to structure your business.
Capital Gains Tax - when selling a business or shares in a company which owns a business, obtain advice on any CGT implications of the transaction
Stamp Duty - this is payable on various transactions including the purchase of shares in companies.
GST - check whether GST is payable on the purchase price. There are requirements of the sale of a business as a 'going concern' to make the sale exempt from GST.

FINANCIAL PLANNING MATTERS

Superannuation - seek advice on how you should structure superannuation matters for you your staff and your business. Remember that this is not your core business and may be best placed in the hands of a professional superannuation trustee or fund.
Insurances - there is a wide range of insurances which may be necessary or desirable in the operation of your business and personal affairs. These include insurance on you (whole of life, death, total and permanent disability, income protection, trauma) and your business (plant and equipment, buildings, assets, fire, public liability, business expenses, directors and officers liability). Such insurances should be checked when a business "partner" enters or exits the business.
Business Financing - where business "partners" are coming in to or exiting a business, the business' financing and leasing arrangements must be considered. Exiting parties will want to be released from any security (mortgage, guarantee) for borrowings or leasing of equipment or land which they have provided and any monies lent to the business repaid. Incoming parties may be required to provide security for borrowings or leases.

OTHER MATTERS

Funding - the exit or entry of a business "partner" will require an assessment of the funding requirements of that transaction and the future capital requirements of the business.
Personnel - any changes of operator in a business are always disruptive and need to be carefully managed. If you are the business operator looking to exit or allow a new person to become involved in your business, do not underestimate the emotional adjustments which you will have to make in doing this. You and the dynamics and culture of your business will be affected by this.

PERSONAL PLANNING

Personal equity and succession planning is also important for you and your business. This includes matters such as making a will, living will and enduring power of attorney and having appropriate superannuation, income protection insurance and work cover.

CONCLUSION

It is important to obtain legal financial and accounting advice and work with your professional advisers to best organize equity and succession planning matters for you and your business.

If you would like further information on equity and succession planning for you and/or your business, please contact us. We can also provide you with other articles and materials to assist you with this.

We are happy to work with you and your other professional advisers to enable you (when appropriate) to grow your business and exit your business in an orderly fashion.

 

DISCLAIMER
This article is general in nature and for information only. It should not be acted upon without obtaining specific legal advice.

 

©Anne Hodgson & Co Lawyers,
Tel: 03 9578 7444 Fax: 03 8677 2962 Email: info@hodgsonco.com.au