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Business Succession Planning |
A business succession plan is an agreement between all the principals of a business and their associates, so that if one of the principals dies, becomes totally or permanently incapacitated or critically ill, then the outgoing principal will sell, and the continuing principals or their associates will buy, the outgoing interest.
A prime focus of this process is to ensure that in the event that there is a loss of one partner, not only do his shares or units transfer to his fellow associates in accordance with the agreement, but there is a funding process in the form of insurance or assets to satisfy the appropriate value placed on those shares. The payment is placed in the hands of his family in the most cost and tax effective manner, minimising such areas as capital gains and other time consuming processes.
Also to be considered are other strategies and agreements to be put in place to address a sale of the business, the closure of the business, or the breakdown and rights of purchase of existing share-holders/unit-holders in a buy out situation.
A well constructed business succession plan also addresses issues such as:
- Valuing the business
- Determining the principals’ exposure to the business in the form of debt and personal guarantees
- Anticipating the capital gains tax assessment
- Deciding when the business succession will operate and addressing contingencies
- Determining the time of disposal which will crystallise the parties’ capital gains tax liabilities
- Taxation treatment of the proceeds
- Integrating the business succession plan into the principals’ overall business and personal estate planning (will)
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