Succession planning is the process of developing structures to help secure the future of your business. While it can be quite a confronting process, it is extremely important to have a succession plan in place to ensure the ongoing success of your business through a structured transfer of ownership and control. We liken it to keeping your vehicle tuned and set up for the conditions in the landscape you experience from time to time.
The Legal Elements can assist you in developing a succession plan that will ensure a smooth transition process in the event that you will one day wish to leave your business. The Legal Elements’ can advise you on:
- Developing a time frame for when intend to leave the business
- Determining what your successor’s responsibilities will be
- Updating your employment contracts and work agreements
- Key parties that you should inform when creating your succession plan, including suppliers and customers
- Intellectual property and privacy policies
- Whether you should sell or gift your business
- The financial and tax implications of succession
- Developing the legal structure of the business after you exit
- Preparation of any legal documents stipulating terms of the concession
- The organisation of any changes/transfers to registrations, licenses or permits
- Implementing the succession plan
- If you are selling or gifting the business to a family member, advising on who would be the best candidate as a successor, and defining their roles and responsibilities
- If you do not have any likely successors in your family, advising you on your other options including selling your business to employees through a management buyout and selling your share of the business to other owners through a buy-sell agreement
In developing your succession plan, the Legal Elements can also specifically advise you on:
- The preparation of your will which is an essential part of any succession plan as it defines how your assets are to be distributed in the event of your death.
- Moving small business assets to a family successor and related issues including value shifting, restructuring and demergers and duties
- Strategies to minimise tax on the sale of your business through Capital Gains Tax (CGT) relief provisions.
We talk about minimising tax but it is really about paying the correct tax for you and not additional amount by way of a poor inefficient structure.
Moving Small Business Assets To A Family Successor
Value shifting – Issuing new shares in the family business or new units in the unit trust to successors can create tax problems where shares are undervalued. It is important that rules under the Income Tax Assessment Act are adhered to in circumstances of direct value shifting.
The Legal Elements can help to you understand whether you meet the requirements that need to be met to qualify for Division 725 value shifting.
Can my business be restructured? If your company has two or more business activities, it may be separated into a new subsidiary of the company where two entities then form a tax-consolidated group. The resulting transfer can then be disregarded in relation to tax, as the tax-consolidated group is regarded as one entity – the ‘parent’ company of which owns the subsidiary.
The Legal Elements can help you with all issues associated with restructuring a company, including demergers. We have a thorough understanding of Division 125 CGT relief, anti-avoidance provisions and application to the Commissioner of Taxation for ‘private binding rulings’.
Will I have to pay any duties? Transferring a business’s assets will attract various degrees of duty, depending on which State the event occurs in. In Queensland you will be required to pay duty on plant and equipment, goodwill, inventory and debtors. At the Legal Elements we recognise that it is sometimes appropriate to locate a business or entity in a duty-friendly jurisdiction to limit future transfer expenditure.
Pay The Correct Tax For In An Effective Business Structure
- CGT relief for businesses up to $6M.
- Small business 50 percent reduction – This concession applies after the general 50-percent CGT discount and normally before the retirement exemption.
- Retirement concession – This concession allows an exemption from CGT where the sale proceeds of the assets are used for retirement.
- 15-year exemption – This provides full exemption from CGT in relation to the sale of an ‘active asset’ that was owned by an individual retiring from the business or ‘significant individual’ retiring from the company or trust, where the asset has been owned for at 7.5 years.
- Rollover relief – The rollover relief allows tax on a CGT event to be deferred where a replacement asset is intended.
- Sole-trader concessions – Provided that CGT concession requirements are met, a sole trader or partnership participant can be in a position to obtain the general 50 percent discount.
- Company– A Company can obtain the general 50-percent CGT discount and rollover relief.
- Trusts – Where a discretionary trust sells a business it may be in a position to obtain the general 50-percent CGT relief and small business CGT relief provided that the Division 152 requirements have been met.
It is important to regularly review your overall business plan to keep it flexible enough to change according to your circumstances.
The Legal Elements always recommends that a realistic succession plan is developed as early as possible to ensure that you achieve the maximum value for your business and to give you peace of mind. An efficient succession plan will help you maximise the return on your investment, ensure a smooth transfer of ownership and control and minimise possible disruptions to your business’ operations.
Please Give Us A Call To Discuss Your Requirements
07 3844 2200