Involuntary Succession - Succession Plus

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Involuntary Succession


Involuntary Succession

By , November 2, 2008

Whilst most of the material on this site talks about the long term strategic planning aspect of Succession Planning and the success of plans conducted over ten years or longer – It is also important to recognise that, based on statistics, if we have a plan over 10 years with at least 4 people involved unfortunately something could well go wrong before the plan is completed.

When we introduce a new plan with clients we always recommend a comprehensive review of insurance coverage to protect the client, the business and their families in the event of something going wrong. It is fairly simple and cost-effective to set up an insurance arrangement that covers the key people (existing and new shareholders) within the business. Coupled with the correct legal agreements we can protect the business and the key people and families around the business.

In our business for example, there are two partners here in Australia – we each hold life insurance cover which is partly owned by the business and partly owned by our family trusts ( shareholders in the business ) what this means is if something was to happen to one of us the business will receive an amount of money which will be used to reduce debts and allow the company to trade on or employ someone to manage it temporarily whilst a long-term strategy is agreed. At the same time, the family trusts would also receive an amount of money which would be payment for the shares they own in the business.

For any number of reasons, my business partner does not want to be in business with my wife, if something was to happen to me  – apart from the fact that she runs her own business. Legal agreements that we have in place, therefore cover the fact that once insurance monies are paid across to the family trust any shares that we hold in the business are immediately transferred to my business partner’s family trust and our involvement ceases.

This would mean that if something was to happen to me, my business owner becomes 100% owner and controller of the business with funds injected into the business to cover any short-term issues and repay some debt at the same time. My wife receive the proceeds of an insurance policy which are roughly equate to my shares in the business. The most comforting thing about this arrangement is that it removes the uncertainty and stress of having to deal with all this at a difficult time anyway.

This insurance cover, and the legal agreements that governs its use is not overly expensive amd is fairly simple to set up given the right advice. It does however amaze me how many clients we meet who have never thought to have this arrangement documented or covered in any way

Craig West

Craig West

Managing Director | Succession Plus

Craig West is a strategic accountant who has over 20 years’ experience advising business owners. His background as a CPA in public practice, provided invaluable experience in the key issues of concern to business owners. Following 6 years of study to gain two masters degrees, Craig focused on Capital Gains Tax (CGT) for business sales advising on strategic management of tax issues. This experience formed a very strong view that business owners (and often their advisers) were unprepared and unaware of the steps required to prepare a business for exit.

Craig now acts as a strategic mentor for mid-market business owners and has written four critically acclaimed books on employee incentives, succession planning, asset protection and exit strategies. Craig has conducted numerous seminars and keynote presentations throughout Australia & internationally, including adviser education programs for the Institute of Chartered Accountants and CPA Australia.

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