Tag: retiring

Business Succession Planning

One day you will have to leave your business – whether its because you retire, you pass the business on to your family, you sell it to an interested party, or because of health circumstances.

Whatever those circumstances are, you always should have a plan to deal with what happens when that day comes. A failure to do so will likely result in your business suddenly coming to an end if something happens to you.

A succession, or exit, plan outlines who will take over your business when you leave or if something happens to you.

A good succession plan puts into place a process that will enable a smooth transition from you to your successor, that minimises disruptions to your business resulting from that transition. A good succession plan also gives potential purchasers peace of mind that the business will not fail the moment you leave. Putting a succession plan in place can maximise the value of your business and enable it to meet future needs or deal with unexpected issues.

What an appropriate plan is will depend on the nature of your business as well as the structure of your business. Some of the questions that you will have to ask are:

  • How long do I want to be in business?
  • Do I want to sell the business eventually or do I want to hand it down to my children?
  • What business structure does my business operate in?
  • What are the assets and liabilities in my business? Who owns them?
  • What is the goodwill and intellectual property in my business? Who owns them?
  • How big is my business?
  • Who can run my business if I am not around?
  • Do I have any processes or procedures for my employees to follow, so that if something happens they can act “automatically”?
  • If I were to sell my business, do I have a handover strategy?

If anything, see your business coach, accountant, or lawyer – they can certainly help you out in relation to identifying these issues and assisting you with your business succession plan.

A good succession plan enables a smooth transition with less likelihood of disruption to operations. By planning your exit well in advance you can maximise the value of your business and enable it to meet future needs.

Shareholders and Partnership Agreements

Starting up a business can be challenging. While it is important to try to get the business up and running as soon as possible, a lot of entrepreneurs fall into the trap of not paying attention to matters that, if left unattended, may cause problems in the future. An example of these sorts of matters is matters that involve legal documentation, such as confidentiality and non-disclosure agreements, terms of trade, and partnership or shareholder’s agreements.

One of the commonly missed steps in setting up a business is a shareholder’s or partnership agreement. This is used in a situation where there are two or more entrepreneurs working together in a business. Whichever agreement is used depends on the structure of the business, however the best time to prepare the agreement is right at the start of the business, before any disputes arise between the parties.

One of the matters that a shareholder’s agreement deals with is in regard to exiting the business. This may happen due to retirement, disability or even death. In the instance of a shareholder retiring, the shareholder’s agreement may give the other shareholders the option or first right to purchase the shares.

In the instance where a shareholder has passed away, the shares may be of little value to any other party other than the other shareholders. This can result in the shares being sold to other parties at a fraction of what they may be worth. In such a circumstance the shareholders agreement may specify that the other shareholders must compulsorily purchase the shares.

As many of the matters that a shareholder’s agreement covers is typically not covered by the company’s constitution, a shareholder’s agreement operates as a supplement to the company constitution. An ideal agreement deals with issues that have a distinct possibility of arising during the life of a business. It can also provide for a mechanism which resolves those same issues without the need of court intervention.

A shareholder’s agreement can include provisions regarding:

  • Direction and type of business undertaken
  • Meeting Procedures
  • Policies, Management, and Structure
  • Procedures of appointment of directors or executives
  • Voting rights and what decisions require votes
  • What decisions are considered major decisions and what percentage of votes are required to pass these decisions
  • The rights of minority voters
  • Breaking deadlocks
  • Shareholder’s exit strategies (including what happens if a shareholder passes away)
  • Shareholder’s warranties
  • Confidentiality agreements
  • Restraint of trade
  • Dispute Resolution

In summary, a shareholder’s agreement can deal with a wide variety of matters that may arise in the life of a business. The failure to address these issues can lead to expensive litigation or even to the failure of the business itself. It is therefore very important to have these matters dealt with early. Don’t leave these matters to chance or ignore it just because there are no problems at this point in time. You never know what is around the corner.