Business Succession - Do I need a business 'pre-nup' - MB+M Group
Business Succession – Do I need a business ‘pre-nup’
Financial Advice

Business Succession – Do I need a business ‘pre-nup’

The question of: Business succession – Do I need a business ‘pre-nup’?, is seldom a consideration, but there is a strong case to do so.  MB+M’s business partner, Irongroup Lawyers, provides some compelling scenarios.

Two minute scenarios…


If you own a business with others, be careful to consider what happens if one partner dies or wants to leave the business…

Scenario One… … My business partners will ‘do the right thing’...

Scenario: Sam, Darren and Matty run a business together. They decide early on to save money and avoid having agreements put in place to deal with what happens if one of them dies. They’ve known each other since high school and trust each other to ‘do the right thing’ if one of them dies.

What’s the issue? Sam dies and the executor of his Will is demanding that Darren and Matty pay to buy out Sam’s interest in the business. Darren and Matty decide they are better off winding up the business and starting a new one, to avoid making any payment. Sam’s family miss out on obtaining any value for Sam’s interest in the business. 

Solution: The Irongroup Lawyers Exit Agreement would have prevented this from happening. It would have enabled Sam’s executor to trigger the agreement and receive fair payment for Sam’s interest in the business, even if the business is sold.
 
Scenario Two… We have a Shareholders Agreement…

Scenario: Karen and Sharon own a hairdressing salon together. They are confident their Shareholders Agreement covers them if one dies so that they don’t have to buy out the deceased partner and the deceased partner instead receives the proceeds of their life insurance policy.

What’s the issue? Sharon dies and Karen discovers the insurance was set up naming each other as the beneficiaries of the other partner’s policy. So, Karen receives the proceeds of Sharon’s life insurance policy then quickly winds up the business and starts a new one to avoid paying out Sharon’s estate in return for Sharon’s shares. Sharon’s family miss out on obtaining any value for Sharon’s interest in the business.

Solution: The Irongroup Lawyers Buy Sell Agreement would have prevented this from happening. The agreement links the insurance to the purchase price and we ensure that each partner is the beneficiary of their own policy.
 
Scenario Three… A new business partner…

Scenario: Katie and Jake own a business together. They keep meaning to look into a succession plan but never seem to find the time.

What’s the issue? Jake dies and his wife Jess inherits his share of the business. Jess doesn’t want to be bought out so that Katie owns all of the business. Jess shows up to the business and starts demanding changes and new ways of operating. Katie is distraught. She never wanted Jess as a business partner and Jess is refusing to negotiate to be bought out.

Solution: The Irongroup Lawyers Exit Agreement would have prevented this from happening. It would have enabled Katie to trigger the agreement and force Jess to be bought out of the business.
 
 

If you have questions, or need some help you can call MB+M and they will put you in touch with the most appropriate lawyer at IronGroup.  You can contact us on 03 5821 9177   

Additional Reading:

1. IronGroup Lawyers: Why You Need Business Succession
2. MB+M: Dealing With Farm Succession & Its Challenges

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