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Adviser Updates

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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


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


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


Family Ownership

Sale Strategies

Third Party Buy/Sell Strategies

Estate Equalisation Strategies

Family Buy/Sell Strategies

Second Generation Strategies

Debt Reduction Strategies



Sole Proprietors and Family Businesses



This Page (and the links under the heading Overview of Alternative Strategies) contains a discussion of a number of strategies that can help deal with the unique challenges that face Sole Proprietors and Family Businesses (including Rural or Agri-Businesses).

It is not intended to be a definitive answer to the problems of any one family.

Instead, it is intended to be a "toolkit" that helps a family to identify the issues and design a common sense strategy.


The Importance of Financial Success to Succession

At the outset, it needs to be stated that the word "succession" contains within it the word "success".

In a way, it is a lot easier to design and implement a Succession Plan for any Business (but especially a Family Business), if it is financially successful.

There can be no succession without success.

However, equally, succession is the ultimate test of success.

Long-term success requires succession.


Views of the Vendor and Purchaser

From the Vendor's point of view, the Business needs to be "saleable".

From the Purchaser's point of view, it needs to be "purchasable".

In other words, the Business must have sufficient profitability to justify a Purchaser:

  • investing their own capital in the Business; or

  • borrowing loan funds from a bank to invest in the Business.


Views of the Purchaser's Bank

If the Purchaser borrows the Purchase Price, the proposition must be "creditworthy" from a lender's point of view.

In a sense, no Business is worth any more than what the Purchaser's Bank will lend them to acquire it.


Views of the Vendor's Bank

Sometimes, the views of the Vendor's own Bank will give them an insight into how the Purchaser's Bank will approach the transaction.

Most Banks would like to retain your Business as a customer, even if there was a change of ownership.

If your Bank wouldn't lend to your Purchaser in order to acquire the Business for your Price, then you still have more work to do.


Preparing a Business for Succession

Without financial success, it will be difficult to sell any Business (particularly on the retirement or death of the Proprietor).

Equally, the Proprietor's children (the "Second Generation") will be more interested in retaining ownership of the Business, if it is financially successful and able to meet their financial needs.

If the financial burden of a Business is too great or the financial rewards are inadequate, it is unlikely to be attractive to a Purchaser or the Second Generation.

This is a harsh reality.

However, what it means is that work has to be done to "Prepare a Business for Succession".


Primary Focus of Complete Succession

From a management point of view, it is important to design business strategies that:

  • repay the debts and liabilities of the Business;

  • improve the profitability of the Business;

  • build the capital value of the Business;

  • maximise the Sale Price of the Business (or part of the Equity in the Business);

  • identify and train people who can assume management and marketing responsibilities;

  • identify a prospective Purchaser (if required); and

  • facilitate the ability of the Purchaser to borrow or pay the required Sale Price.

These management strategies are not the primary focus of this web site.

Complete Succession is primarily concerned with the family, commercial, financial, legal and taxation implications of:

  • the change of ownership or control of the Business (or Equity in the Business);

  • the method of funding the Sale Price; and

  • the need to extinguish personal liabilities with respect to debts of the Business.


Transmission of Business or Equity to Family Through Proprietor's Will

Most succession within a family takes place through the vehicle of the Proprietor's Will.

Ownership of Business

If the Proprietor owns the Business (or an Equity in the Business, e.g., where a husband and wife co-own the Business) in their own name, their interest will form part of their Estate upon their death and will be distributed by their Executor in accordance with the terms of their Will.

This applies equally if the Business is owned by a Family Trust and the Proprietor controls the Trust through the ownership of shares in the Trustee Company.

Their interest in the shares in the Trustee Company will form part of their Estate upon their death and will be distributed by their Executor in accordance with the terms of their Will.

No Sale and Purchase

Because the interest is transmitted to the Beneficiaries pursuant to a Will:

  • there is no need to sell the interest;

  • there is no need to purchase the interest; and

  • there is no need to fund the Purchase Price (whether by way of loan or insurance).

No Capital Gains Tax

Similarly, there is no disposal from a Capital Gains Tax point of view, at least until the Beneficiaries on-sell their interest in the Business.

No Stamp Duty

A transmission of an asset pursuant to a Will will normally be exempt from stamp duty.


In one sense, the transmision of ownership of a Business pursuant to a Will is the most tax- and cost-effective method of succession within a family.

However, it is not always the most appropriate method for the particular Proprietor or their family.

The Proprietor should carefully consider whether the transmission to the Beneficiaries at the time of death (but not before) is what they want to occur from a commercial and family point of view.


Considering the Views of Two Generations

Family Succession will often result in the transmission of a Business from the parents (the "First Generation") to their children (the "Second Generation").

While the First Generation is normally driving the process, it is still important to consider the interests and wishes of the two generations.

This is not just a matter of the First Generation kowtowing to the wishes of the Second Generation.

Sometimes, the Second Generation might be sending a signal to the First Generation that it might be better for them to sell the Business during their own lifetime rather than gift it to the Second Generation pursuant to a Will.

While this might be disappointing for some, it might be the right outcome for all concerned.


Second Generation's Wishes

A Will strategy might not be the most desirable if none of the family members wish to retain ownership of the Business after the death of the Proprietor.

In this case, the First Generation might have to consider the sale of the Business during their lifetime.

Many entrepreneurs devote their lives to building an asset that will stay in the family.

Many are so devoted that they neglect their family during the process.

If the Second Generation don't want the Business and would sell it as soon as they got their hands on it, then perhaps the First Generation should consider selling it during their own lifetime.

They will normally have a better appreciation of its true value in the sales process and should be able to achieve a better Sale Price (especially if they are still healthy enough to provide post-sale services to the Purchaser).


First Generation's Financial Needs in Retirement

It is usually desirable for a Proprietor to retire from active full-time involvement in the Business at some appropriate time in their life.

One obstacle that prevents or delays a planned retirement is the lack of sufficient superannuation, investments and cash to fund their living expenses in retirement.

If the Proprietor transmits the Business to their Beneficiaries through their Will, the Proprietor will never receive the capital value of their Equity in the Business as consideration for a sale.

As a result, the capital value of their Equity will not contribute to their retirement strategy.

The Proprietor must therefore consider what strategy will best help them to fund their living expenses in retirement.


Financial Needs of Spouse

This analysis assumes that the financial needs and strategies of the Proprietor will take into account the living expenses of their Spouse.

In the case of a Retirement strategy, the funds payable to the Proprietor should be sufficient to fund the living expenses of both parties.

In the case of a Death strategy, the funds payable to the Proprietor or their Estate could be distributed initially to the Spouse and, upon their subsequent death, to the children (i.e., the Second Generation).

The Death strategy enables the ownership of the Business to be transmitted to the Second Generation through the vehicle of the Will (or a Family Buy/Sell Strategy), while the Insurance or Sale Proceeds could be distributed to the Spouse.

Transmission of Business to Surviving Spouse

If the Business was transmitted to the Spouse through the vehicle of the Proprietor's Will, many of the strategies discussed on this web site would need to be duplicated for the Spouse as well as the Proprietor.

If Insurance Strategies were used, it would be necessary to have Insurance Policies with respect to both Parents, because it would not be possible to predict which Parent would die first.

The Death strategy with respect to the primary Proprietor therefore assumes that:

  • the Second Generation will obtain ownership of the Business; and

  • the Spouse will receive the Insurance or Sale Proceeds.


Implications for Family Business Succession Planning

The design of a Family Succession Plan therefore needs to take into account:

  • the children's wishes or intentions with respect to the Business; and

  • the Proprietor's need to fund their living expenses during their retirement.

The different approaches might not be relevant to every family.

However, it can help to know that the other approaches are available, so that they can be considered and implemented, adapted or dismissed as appropriate.


Overview of Alternative Strategies

Click here to read about alternative strategies and scenarios for Sole Proprietors and Family Businesses.


Copyright: Clover Law Pty Ltd



Adviser Tip

In the case of Retirement, a Complete Succession Plan can pre-agree the Purchase Price and specify a timeframe for payment.

If you do not have adequate insurance for an Insurable Event, your Succession Plan can specify a timeframe for payment of the shortfall.

See more Adviser Tips


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