Business Succession Planning

Ross Caruso of WRS provides a run down of Business Succession Planning (click to read his blog).

Purpose of business succession planning

The key objective of a comprehensive Business Succession Plan is to ensure that the business survives even after the death or critical illness of one of its principals.

In simple terms, it provides:

  • a terminating owner (or their estate) with the option to sell their interest in the business to the remaining owner(s)
  • the funding mechanism for the remaining owner(s) to purchase it.

These benefits are achieved by implementing a formal agreement. This eliminates concerns by creating ready buyers and sellers for the business at a fair, pre-determined price. In establishing such arrangements, the participants define the circumstances that would trigger the sale and the agreed value. They agree on the legal documentation required and set up a funding plan.


  • A buy/sell provision within the Business Succession Plan provides for business continuation with a minimum of disruption in the event one or more
  • owners need to exit at short notice.

This plan:

  • provides the business with every chance of survival
  • ensures the terminating owner (or their estate) receives true value after tax
  • allows for an orderly transition of ownership rather than forcing a fire sale
  • helps retain key employees
  • may reduce or eliminate the Capital Gains Tax (CGT) and stamp duty issues typically associated with mandatory agreements.

How it works

Even with a Business Succession Plan to ensure the transfer of a business interest upon death, all problems are not solved .. The remaining owners need money to buyout the deceased’s family’s interest.

A number of funding mechanisms are available. The most successful is a combination of:

• Life insurance

• Trauma insurance

• Total and Permanent Disability (TPD) insurance.

All these can be covered by a buy/sell agreement.

Buy/sell agreements

Globe PuzzleThere are two types of buy/sell agreements:

  • A mandatory buy/sell agreement does not provide the terminating owner (or their estate) nor the continuing owners with a choice as to whether they buy and sell. There is also the potential for stamp duty to be assessed on the full value of the business as at the date of the mandatory agreement.’mandatory buy-outs’
  • ‘put and call options’.

Put and call options are arguably the most effective way of structuring an agreement to provide the same level of security as a mandatory agreement. A put and call option agreement is structured such that if one party to the agreement wishes it to proceed it will. Conversely, it will not proceed if all parties decide to set it aside.

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