How to Safeguard Your Business for the Future: A Business Succession Planning Guide
Imagine being unable to work tomorrow. Who would pay your employees, speak with the bank or make decisions about your business?
For many small business owners, the answer is not immediately clear. They may have a will but no documented plan for keeping the business operating if they die or lose capacity.
Business succession planning helps address that gap. It considers who can make decisions, what happens to ownership and whether the business should continue, be sold or eventually close.
1. Does Your Company Constitution Address Succession?
A company constitution sets out rules for how a company operates. For business succession, it is worth checking how the constitution deals with director appointments and changes in control.
This is particularly important for a sole director. If that person dies, the company may be left without anyone authorised to manage its day-to-day affairs until a replacement is appointed. ASIC explains that, in certain sole-director and sole-shareholder circumstances, an executor or administrator can appoint a new director.
A constitution should be reviewed alongside the company’s ownership structure and the owner’s will so that the documents work together.
2. Who Can Act If You Lose Capacity?
Succession planning is not only about death. An accident or illness could leave a director temporarily or permanently unable to make business decisions.
A company power of attorney may allow the company to authorise someone to carry out specified functions, subject to the document’s terms and applicable law. This can be particularly relevant where one person ordinarily manages banking, payments or payroll.
A company power of attorney is not a substitute for planning who will serve as director or control the company in the longer term. Those arrangements should be considered together.
3. What Happens to Your Shares If You Die?
If you own a business with another shareholder, it is important to discuss what should happen to your shares if either of you dies.
Would the surviving shareholder buy them? Could the deceased shareholder’s family retain an interest? How would the shares be valued, and where would the purchase money come from?
A shareholders agreement can document agreed arrangements before those questions become urgent. Depending on the circumstances, the owners may also explore funding options for a future share purchase with their financial advisers.
Without a clear agreement, a surviving business partner and the deceased owner’s family may have different expectations about the company’s future.
4. Have You Planned Who Will Control Your Trust?
If your business or investments are held through a trust, your will may not be enough to deal with succession.
The trust deed should be reviewed to establish who can appoint and remove trustees, what happens when an appointor or principal dies, and whether a successor can be nominated.
Depending on the deed, a separate succession document may help clarify who is intended to take over a key control role. Where a company acts as trustee, succession of that company’s directors and shareholders may also need attention.
5. Do You Still Need Every Company or Trust?
Business structures can accumulate over time. A trust created for a proposed investment may never have been used, while another may no longer serve its original purpose.
Reviewing these structures with a solicitor and accountant can help identify ongoing costs, administrative obligations and succession issues. Do not wind up or restructure a trust without tailored advice: doing so may have tax, duty and other consequences.
Frequently Asked Questions
Is a will enough for business succession planning?
Not always. A will may address personally owned shares, but company constitutions, shareholders agreements and trust deeds can also affect what happens to the business.
Should a sole director have a succession plan?
Yes. The plan should address both an unexpected period of incapacity and the appointment of someone authorised to manage the company following death.
Do I need a shareholders agreement if I trust my business partner?
A written agreement can clarify both parties’ intentions about share transfers, valuation and funding, reducing the need for their families to resolve those questions later.
Can I simply close a trust I no longer use?
That depends on the trust’s circumstances. Its deed, assets, liabilities and potential tax or duty consequences should be reviewed before any decision is made.
Final Thoughts
Business succession planning is about protecting the people who depend on the business as well as the value you have built. Reviewing your company documents, shareholder arrangements and trust succession provisions now can give those left in charge a clearer path forward.
If you would like to review your business succession arrangements, contact Lidia Vicca or book a free consultation through Vicca Law to discuss your circumstances.