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Site Map

Adviser Updates:

Adviser Updates

Publications and Documents:

Publications and Documents

 

Business Succession Planning:

Business Succession Planning

Need for Succession Plan

Need for Asset or Buy/Sell Strategy

Need for Liability or Key Person Strategy

Negotiating a Succession Plan

 

Simple Succession Plan:

Simple Succession Plan

 

Complete Succession Plan:

Complete Succession Plan

Strategy

Financial Needs

Insurance Funding

Retirement Funding

 

One Page Strategy:

One Page Strategy

Asset Needs

Liability Needs

Personal Needs

Who Pays the Premiums?

Valuing the Business

Simplifying the Valuation Issue

Equity vs. Loan Capital

 

One Policy Strategy:

One Policy Strategy

Flexibility

Dual Role of Personal Cover

Dual Role of Debt Red'n Cover

Security & Tax-Effectiveness

Cost Savings

Pre-Agreed Purchase Price

Apportionment of Premiums

Methods of Aggregation

 

Multiple Policy Approach:

Multiple Policy Approach

Super Fund Ownership

Tax Disadvantages

Cost Disadvantages

Other Disadvantages

Geared Premium Funding

Super Buy/Sell

 

One Page, Two Policy Strategy:

One Page, Two Policy Strategy

 

Other Issues:

Tax Deductibility

Inadequate Insurance Proceeds

Vendor Finance

Changing Needs

Future Growth of Equity

Trauma Buy/Sell Strategy

 

Sole Proprietors and Families:

Sole Proprietors and Families

Overview

Family Ownership

Sale Strategies

Third Party Buy/Sell Strategies

Estate Equalisation Strategies

Family Buy/Sell Strategies

Second Generation Strategies

Debt Reduction Strategies

 

 

A Simple Succession Plan

 

Purpose of a Simple Succession Plan

A Simple Succession Plan tends to focus primarily or exclusively on:

  • the sale of the Business Proprietor's Asset or Equity in the Business (the "Asset Strategy")

  • upon the occurrence of an Insured Event.

 

Asset Strategy

In contrast to a Complete Succession Plan, a Simple Succession Plan tends to focus primarily or exclusively on your Asset Strategy.

Click here to read about the nature of a Complete Succession Plan and how it differs from a Simple Succession Plan.

 

The Need for an Asset (or Buy/Sell) Strategy

Click here to read about the need for an Asset (or Buy/Sell) Strategy.

 

Legal Conveyancing or Sale Agreements

The need to structure the legal arrangements with respect to the Insurance Cover resulted in Lawyers preparing Conveyancing or Sale Agreements that might or might not be triggered by the occurrence of an Insured Event in the future.

These Agreements needed to address the relatively sophisticated tax implications with respect to Insurance Proceeds that are discussed here.

As a result, Lawyers eventually adopted the practice of preparing dedicated "Buy/Sell Agreements", in addition to any Proprietors Agreements (such as Partnership or Shareholders Agreements) that the Proprietors might have had.

 

Buy/Sell Agreements

When the Business Succession Agreement focusses primarily on the Succession Plan (i.e., the Asset or Buy/Sell Strategy) for Insured Events, it tends to be called a "Buy/Sell Agreement".

Many Buy/Sell Agreements fail to deal with other Succession Planning issues like:

These are dealt with in a Complete Succession Plan and the Business Succession Agreement that documents a Complete Succession Plan.

However, sometimes for business or personal reasons, a Business might prefer to document a Simple Succession Plan.

Click here to read about Buy/Sell or Business Succession Agreements.

 

Self-Ownership Buy/Sell Agreements

Most Lawyers (other than IGS) use Self-Ownership Buy/Sell Agreements and recommend that the Buy/Sell Cover be owned by the relevant Life Insured personally.

Click here to read more about Self-Ownership Buy/Sell or Business Succession Agreements.

 

Standard IGS Self-Ownership Business Succession Agreement

Click here to learn more about the standard IGS Self-Ownership Business Succession Agreement used for a Simple Succession Plan.

This is a more traditional Buy/Sell Agreement which deals only with the Buy/Sell or Equity Insurance Cover.

However, unlike most other Buy/Sell Agreements, it includes succession strategies for retirement and events other than Insurable Events.

IGS usually prepares this type of Agreement where:

  • a Complete Succession Plan is not required or relevant; or

  • it is preferred by the Business or its Advisers.

 

Ownership of Equity by Life Insured

By definition, Self-Ownership must pay the Purchase Price to the Life Insured or their Estate.

Therefore, preferably, each Life Insured should own the Equity in the Business in their own name (rather than in the name of a Related Party).

IGS normally uses a Business Insurance Trust Agreement, if any of the Equity is owned by a party other than the Life Insured (i.e., a Related Party Vendor such as a spouse, Family Company or Family Trust).

 

Equity vs Loan Capital

Many Clients and Advisers misunderstand the difference between Equity Capital and Loan Capital when they design a Succession Plan.

If a Proprietor has both Equity and a Loan Account, it is important that their Succession Plan facilitates both:

  • the sale and purchase of the Equity; and

  • the repayment of the Loan Account.

A proper understanding of the difference is required in order to structure an effective Succession Plan.

In effect, their Succession Plan needs both:

The Liability Strategy involves different legal, commercial and insurance considerations to an Asset or Buy/Sell Strategy.

A Complete Succession Plan is designed to address these considerations cost- and tax-effectively.

Please click here to read about the difference between the two interests and the implications for the design of a Succession Plan.

 

A "Complete Succession Plan"

Click here to read about the nature of a Complete Succession Plan and how it differs from a Simple Succession Plan.

 

Sole Proprietors and Family Businesses

The Succession Planning Strategies on this web site are most relevant to Multiple Proprietor Businesses in which there are arms-length Proprietors or Owners.

However, they can also be relevant to Sole Proprietor and Family Businesses.

Click here for strategies for Sole Proprietors and Family Businesses.

 

The Four Planning Issues

Set out on the following pages is an overview of four basic planning issues that help understand and design a Complete Succession Plan:

 

Where to Start

Issue 1 is a good starting point to understand the unique benefits of a Complete Succession Plan and how it differs from other approaches to Succession Planning.

 

Free 20 Minute Teleconference

If a Client is uncertain whether to attend a Client Meeting or use the IGS Documentation Service, IGS offers a free teleconference (of up to 20 minutes) with the Client to explain the purpose and benefits of a Complete Succession Plan and the "One Page, One Policy Strategy".

 

Copyright: Ian Gray Solicitor

 

 

Adviser Tip

A Complete Succession Plan is not just about Death, it's not just about Insurance and it's not just about selling your Equity.

See more Adviser Tips

 

 

 

 

 

Current Marketing Schedule

Current Marketing Schedule

Ian Gray travels to most capital cities regularly throughout the year and is available for Meetings.

Please click here to see his availability in Brisbane, Sydney, Melbourne, Adelaide and Perth.

Please contact us to arrange an appointment or teleconference.