Part 1 of this series of articles dealt with the need for early
implementation of a range of succession strategies rather than
simply relying upon a clause in your Will. This article deals with
specific succession and transition situations and provides
suggestions which will facilitate stakeholders (the outgoing and
incoming parties) enjoying win-win outcomes. If these situations
are poorly managed, personal relationships may be jeopardised and
commercial opportunities lost.
If the transition/succession is seen as merely an asset sale or
transfer, the process may be relatively straightforward. Liken this
to a traditional sale of business. Transition can be achieved
pursuant to the Will upon the death of a sole trader; during his or
her life, or at the election of the "controllers" of the
family trust, company or partnership. (See article 1 in this
series: Business succession and exits: is the Will
An asset sale is more likely to attract significant practical
issues, for example, licence transfers, lease assignments or other
major contract approvals.
There will also be a number of resultant taxation issues such as
(stamp) duty, capital gains tax and GST.
Control of ownership
If you have a family trust, partnership or company, and the
transition or succession is to a related party, an effectively
drawn transition strategy can minimise operational disruption and
adverse taxation consequences.
A sole trader can transfer assets through his or her Will or,
more comprehensively, enter into arrangements before his or her
death (to take effect on death), by way of an option or even a
A partnership should have a (written) agreement that sets out
all key agreements between the parties. An opportunity exists
within this document to design transition arrangements to suit each
Transition for a company is effected by transfer of shares.
Whilst the company constitution sets out basic rules in this
respect, shareholders should consider entering into a shareholder
agreement (which has many similarities and clauses to a partnership
Family (discretionary) trust
Transition to a family member under a family trust can be
effected through the offices of the trustee and the appointor. Once
again, careful planning by amending the relevant provisions in the
trust deed will achieve the desired results.
Many business structures utilise a combination of the above (eg,
corporate trustee of a family trust which is a partner in a
partnership), resulting in the need to create an overreaching
document or documents to bring these different elements
An essential element of any transition or succession exercise is
managing the taxation consequences: (stamp) duty; capital gains tax
and GST. The most effective outcome will be achieved by
long-term planning, willing parties and
Having a plan in place to transition your business will
inevitably result in a better outcome than where there is no
In some circumstances, a straight sale of assets will be the way
to proceed – so long as the practicabilities and tax
consequences are well managed.
Often, however, and particularly if the new owner is a related
party, a change in control will be the optimum mechanism to achieve
The third article in this series will address the legal aspects
of readying your business for sale (or operating it better
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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