Have you ever stopped to think about what would happen to the business if you were suddenly no longer there to run it?

It is a question many business owners put off considering. Retirement can seem a long way away, and nobody likes to contemplate serious illness, incapacity or death.

Succession planning is not just about what happens when you retire. It is about ensuring your business can continue operating and your family understands what happens next if you are no longer able to be actively involved.

Who will actually run it?

The first question is often the most difficult: who will run the business?

While you might aspire to have your kids take over, they may have different interests, skills and career expectations.

One child may have worked in the business for years and be ready to take the management reins. Another may have no interest in being involved in the day-to-day conduct of the business but still expect to receive their fair share of the family wealth.

In that regard, it is important to distinguish between management and ownership of the business.

Succession plan

A succession plan might involve:

• One family member taking over management
• A senior employee or newly employed manager running the business
• Ownership being shared between family members either directly or through a jointly owned structure
• Selling the business and distributing the proceeds
• One or more family members retaining the business whilst other assets are sold and the proceeds distributed to ensure a fair financial outcome for all family members

It is important that these decisions are made at a time when they can be considered properly rather than at a time when the family is under stress

Your Will is just one piece of the puzzle

A Will is an important part of succession planning, but is rarely the whole solution.

The legal structure through which the business operates will have a significant impact on what happens to the business when the principal dies or becomes incapacitated.

Companies, trusts and partnerships each have different legal and practical consequences. Existing shareholder agreements, unitholder agreements, partnership arrangements, trust deeds and company constitutions also affect what happens to ownership and control and the significance of those documents is often overlooked.

It is appropriate to review those documents from time to time to ensure that they reflect your current intentions.

At Madgwicks Lawyers, we work with privately owned and family businesses to help business owners consider the legal, commercial and succession issues involved in planning for the future.

If you have built a business that you want to see continue beyond you, it may be time to start the conversation.

For further information, contact Philip Diviny, Principal on philip.diviny@madgwicks.com.au

The information provided in this article is general in nature, cannot be relied on as legal advice and does not create an engagement. Every business and family is different and appropriate legal and financial advice should be obtained before implementation. Please contact one of our lawyers listed above for advice about your specific situation.