Business Succession Planning

Your involvement in the success of your business probably heavily influences your own lifestyle and that of your family. Once you’ve settled on your business structure, business succession planning is often the next critical task for all business owners.

It's important to remember that we are all mortal and fallible. Those that you start in business with today, may not be the same people years down the track. A properly prepared business succession plan will protect your interests and those of your family.

We can assist you in planning to avoid, or minimise, the impact on your business due to:

  • death;
  • total and permanent disablement; and

As part of our work in setting up the right business structure, we can help you to set a plan to deal with these issues.

We can also help you with estate planning related to you and your family.

What is Business Succession Planning?

A Business Succession Plan is basically a document setting out the intentions of the owners of a business as to what is to happen in certain situations where ownership of a business, by choice or by operation of law, changes hands. 

Who does the Business Succession Plan affect?

A business succession plan, or lack of one, affects all business owners and their family members or beneficiaries to their estate in the event of death.

Statistics show that Australia has many hundreds of billions of dollars worth of business assets in the current family and small to medium enterprise business sector, which will at some point transfer from current owners either to the next generation within the family or to new owners.

A substantial amount of that transfer of business assets will be brought about by the death or disablement of the major driving force behind the business.

Despite these statistics, on average, less than one third of family businesses have considered a Business Succession Plan and less than one ninth of family businesses have a Business Succession Plan in writing.

What should a Business Succession Plan cover?

The four main areas to be covered in a Business Succession Plan are:


A Business Succession Plan for this event may well need to be documented in conjunction with taking in a younger co-owner to the business with the idea that, in time, that younger co-owner would acquire the retiring co-owner’s interest.

The critical injury or illness of a proprietor

Normally proprietors will take out insurance to cover themselves for injury or illness but often the insurances are inadequate for the ongoing operation of the business and the protection of the proprietor and their own assets.

The total and permanent disability of the proprietor

Again, most proprietors will take out insurance to protect in this scenario, but again, most do not properly identify the risk nor properly provide for the outcome should the event arise.

The death of a proprietor

One of the most important aspects of the Business Succession Plan is to cover for the situation where a proprietor dies.

Most proprietors would want to ensure that their family received the true value of their share of the business in the event of their death. They would also want to ensure that there are no undue complications in obtaining that value.

A properly devised Business Succession Plan allows for this. No succession plan means that the spouse of the deceased may well have to negotiate and haggle with the surviving proprietor in order to get the true value of the deceased’s interest in the business.

Likewise, depending on the business structure, remaining business owners may end up in business with someone they did not expect to.

Can I draw up my own simple plan?

Generally, proprietors are unable to draw a simple agreement to cover business succession issues for the following reasons:

  • Substantial care needs to be taken in considering the structure in which the business is owned. Different arrangements apply to whether the business is owned by a company, by a trust, in partnership or through a joint venture.
  • The most important consideration is to ensure that any Business Succession Plan does not fall foul of the taxation laws. For instance, a poorly devised plan can expose the proceeds from a life insurance policy to the effects of income tax. A poorly devised plan could also expose assets transferred in accordance with the plan to capital gains tax at an inappropriate time.

Who needs to be involved in drawing up the plan?

There are three main participants (apart from the proprietors, of course) in devising a proper Business Succession Plan.

An insurance consultant experienced in this area of expertise

It is not simply a case of obtaining an insurance policy to cover against disability or death. It is critical that any insurances used within the plan are properly constructed for the benefit of the proprietors.

An Accountant

The accountant is needed to value the business in order to determine the level of life insurance needed for the Business Succession Plan. Also, the accountant will need to liaise with the lawyer to ensure that the lawyer is properly briefed as to the structure of the owner of the business.

A Lawyer

The lawyer is needed for the purpose of drawing the documentation encompassing the Business Succession Plan. An understanding of corporate and taxation law is essential and you will experience both these with an E&A commercial lawyer.