Business succession and continuity

Four ways an owner leaves

Succession planning tends to be discussed as though it were only about death. In practice an owner leaves a business in four ways - planned retirement, sale to a third party, death, and loss of capacity - and each needs a different mechanism. A plan built only for death leaves the most likely scenarios unaddressed, and incapacity is the one most often ignored entirely despite being the hardest to manage in the moment.

The three documents that have to agree

A workable succession plan is a conversation between three documents that are usually prepared by different people at different times.

• The shareholders or partnership agreement - who acquires the departing owner's interest, at what price, and on what payment terms.
• The owner's will and enduring documents - who controls the owner's personal position, and who inherits what.
• The funding - life and total-and-permanent-disability insurance, or agreed staged payments, so the money exists when the trigger occurs.

Where plans fail

The common failure is not the absence of documents but the contradiction between them. A will that leaves shares to a spouse while the shareholders agreement compels their sale to the other owners. An insurance policy owned by the wrong person or in the wrong amount. A buy-sell trigger for death but not incapacity, so a stroke leaves the business paralysed while an attorney and the remaining owners argue. Each of these is discovered at the worst possible moment, and each is avoidable by reading the documents together once.

Incapacity is the harder case

Death is at least certain and documented. Incapacity is gradual, contested, and often unaccompanied by any authority to act. An enduring power of attorney allows someone to deal with the owner's financial and business interests, but it does not by itself let the remaining owners buy the interest out or replace the person in the business. That needs the ownership agreement to say so, with a defined trigger and a way of determining that the trigger has occurred.

• Wills, enduring powers of attorney and guardianship →
• Advance health directives →

Assets held outside the business

Many owner-operated businesses trade from premises the owner holds personally or through a self-managed fund, and use equipment or intellectual property owned outside the trading entity. Those assets need their own succession treatment. A plan that transfers the business but leaves the premises with an estate that then wants to sell has solved half a problem.

Selling instead of succeeding

For many owners the plan is a sale rather than a handover, and the succession work becomes preparation. That means clean ownership records, a landlord who will consent to assignment, contracts that can transfer, employee entitlements quantified, and no unresolved disputes. That preparation takes longer than most owners expect, which is why the work begins well before the intended sale.

• Buying and selling a business →

Working with your other advisers

Succession sits across law, tax and financial advice, and we do not advise on the last two. We work with your accountant and, where insurance funds the plan, your adviser, so that the legal mechanism and the money behind it match. Where the plan depends on a tax outcome, that needs confirming with your accountant before the documents are settled rather than after.

Process

1. 1

   We map how each owner might leave, and what should happen in each case.

2. 2

   We read the ownership agreement, the wills and enduring documents, and any insurance together, and identify where they contradict each other.

3. 3

   We advise on buy-sell mechanisms, triggers and valuation, including for incapacity.

4. 4

   We coordinate with your accountant and, where relevant, your insurance adviser.

5. 5

   We prepare or amend the ownership agreement and the estate documents so they align.

6. 6

   We review the plan when ownership, family circumstances or the business change.

What to prepare

• The shareholders or partnership agreement, if one exists.
• Company constitution or trust deed.
• Each owner's will and enduring power of attorney.
• Details of any life, total-and-permanent-disability or keyperson insurance.
• Details of business assets held personally or outside the trading entity.
• The lease for the business premises.
• Your accountant's details.

Risks, deadlines and common mistakes

• A will and a buy-sell provision that give the same interest to different people.
• A plan that covers death but not incapacity, which is the more likely and harder event.
• Insurance owned by the wrong party, in the wrong amount, or lapsed.
• Business premises or intellectual property held personally with no succession treatment.
• Leaving preparation for a sale until the sale is already being negotiated.