Posted by: Chloe Kopilovic | Date: 26 November 2012
A Business Will, or a Buy-Sell Agreement, is something that I strongly encourage all my clients who are business owners to have.
A properly drafted Business Will, will allow for the smooth transition of a business partner unexpectedly departing the business (for various reasons such as total and permanent disability or death of an owner) and provide the remaining business partners with the ability to take quick control of the business without the financial pain.
Frustratingly, a Business Will is a document that most business owners agree is a good thing to have in place, but never get around to actually doing. There are plenty of advantages for having a valid Business Will in place, for example:
Prior to preparing the Agreement, you should arrange a time to speak with your accountant and solicitor to get a full understanding of the potential tax implications and legal traps. In particular, the following needs to be considered and addressed:
1. Determination of value, by either:
2. The Triggering Events, for example:
3. Funding the payout; and
4. Tax consequences, including tax consequences if the payout is funded by insurance.
There are many ways in which a business owner can fund this type of Agreement:
Where there is a shortfall, the Business Will should provide for how the unpaid balance is to be paid.
It is very important to get advice from a lawyer or accountant experienced in this area, to avoid any unwanted Capital Gain Tax consequences.
It is easy to see why a Business Will is an important component for business planning. When done properly, the Agreement can make the transition for all parties much smoother despite the difficult circumstances.
If you have any questions relating to Business Wills, please do not hesitate to contact me.