 If you are managing your own business, you may want to consider what would happen if you suddenly became ill or otherwise not able to work for a period of time. This is particularly important if you are a sole trader or only have a small number of employees. This may also become an issue when you prepare to retire. Considerable peace of mind can be achieved by making proper arrangements for the handover of a business.
For example, if you operate your business through a company structure, and you are the sole director and secretary of the company, then it is vital for the ongoing management and continuity of the company that arrangements are put into place so that the control of the company can be transferred. A succession plan, which is a contractual agreement, can be prepared to put into place a tailor-made process by which the shareholding and management of a business can be transferred.
What should a business succession agreement contain?
Essentially, a business succession agreement should contain terms and conditions regarding the way in which the business will be disposed of or sold and how the disposal will be paid for or funded. Typically, there are certain events such as death, disablement, bankruptcy, absence from the business for a certain time and conviction for a criminal offence, which are included in the agreement as triggers for the enablement of the disposal of the business. When an event occurs, the party then has a right to sell their interest in the business to the buying party. The specific circumstances of the individuals and the nature of the business will determine the more specific terms and conditions required in the agreement. As to the funding side, this will depend upon the purchasing party’s financial situation and consideration should also be given to tax consequences of the sale in the outgoing party’s hands. Insurance, including life or trauma, may also provide a means of funding, in terms of the recipient of the benefit of the insurance payout.
An Enduring Power of Attorney is also a useful document. Click here to read more.
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Business Succession
