What business succession planning means
At its core, succession planning addresses four questions: who runs the business, who owns it, how value is extracted, and what happens if a planned transition is overtaken by an unplanned event. The answers are reflected in a set of coordinated instruments — shareholders' or unitholders' agreements, company constitutions, trust deeds and deeds of variation, wills, enduring powers of attorney and, in some cases, buy-sell agreements supported by insurance.
Why it is different from ordinary estate planning
A standard will deals with assets owned personally at the date of death. Business interests are rarely that simple. Shares in a private company may be subject to pre-emptive rights; interests in a discretionary trust generally do not pass under a will at all because no individual beneficiary owns them; and the appointor of a family trust holds a separate role that must be passed on through the trust deed rather than the will. A succession plan reconciles these instruments so that the intended outcome can actually be delivered.
What happens if a business owner dies or loses capacity
On death, the deceased's shareholding passes to the personal representative subject to any pre-emption rights and the terms of any shareholders' agreement. Trust interests are governed by the trust deed. The deceased's role as appointor of a trust passes only if the deed allows it and the successor has been validly nominated. Where the owner loses capacity rather than dies, an enduring power of attorney for financial matters is usually the only practical way of preserving operational continuity.
Family businesses and ownership transition
In family businesses, ownership transition is often the hardest piece. Active children expect their contribution to be recognised; non-active children expect equal treatment. Both can be reasonable. The legal tools include differential gifts in wills, equalisation through non-business assets, shareholders' agreements that bind incoming family members, and trust deed arrangements that define classes of beneficiary. The right combination depends on the family and the structure.
Company, trust and shareholder issues
The structural questions usually drive everything else. A company shareholders' agreement should address transfer on death, valuation, drag and tag rights, and dispute resolution. A trust deed should clearly identify the appointor role and provide a workable succession to it. A company constitution should align with the shareholders' agreement and not undermine it.
How legal documents should work together
A succession plan is only as good as the consistency between its documents. A will that purports to gift "my shares" when the shares are in fact held by a trustee, or a shareholders' agreement that forces a sale at a price the will then assumes is not realised, will produce disputes. The point of the plan is to identify and reconcile these issues while the owner is available to give instructions.
When to seek legal advice
Practical triggers for succession planning include the owner's approach to retirement, a change in family circumstances (marriage, separation, illness), the entry or exit of a co-owner, or a major restructuring of the business. For an overview of our practice see business succession planning; for the related estate work see wills and estate planning and probate and deceased estates.
General information only
This article provides general information about Victorian law and is not legal advice. Estate disputes and contested wills turn on individual facts and strict statutory time limits. For advice tailored to your circumstances, please speak with our contested wills team or send an enquiry.