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01 January 2017 Posted by 


Legal side to be aware of

By Justin Dowd

FAMILY business owners work tirelessly to make a success of their commercial entity, often pouring their heart and soul into the job.

So what happens when they want to pass the torch on?

Handing over control and ownership of a family business can be fraught with legal complications but the roadblocks can be avoided if you take careful consideration and preparation in several key areas.

Among the countless issues that will need cautious attention is whether to sell the business and if so for how much? How to manage the tax liabilities? If a child is to become your successor, are they mindful of and capable to take on the role? How to take care of existing staff, many of whom may have been part of the business for some years.

While it may be exciting to think about the next phase of your life after years of hard work and sacrifice, it is important to have an exit strategy early on - whether passing the reigns to the next generation or someone outside of the family.

Firstly, be clear about what it is you’re trying to achieve so that all parties involved can work toward the same outcome.

If you’re exiting a business, it is highly probable the business already has an accountant so it is important to bring that person into the discussion to get expert advice. For example, what would be the tax complications of any new structure? A professional can help navigate those uncertainties and properly put your plan into effect.

If you’re trying to sell the business to someone separate to the family, then you would want to maximise your return and, of course, comply with any statutory requirements like the transfer of the trading name and assets.

However, often in a family business situation, an owner’s exit would be in favour of a child taking over and so it is important to note that these considerations are a little different because you’re not necessarily seeking to maximise the end price.

Arrangements need to be carefully made for ongoing employees. This can be both tricky and personal as often in the case of a family business, staff may have been part of the business for a long time. Don’t overlook things like long service and holiday entitlements.

Very often an owner would remain on in some capacity for a while to be able to slowly transfer the business to its successor.

This would enable the owner to train the successor and pass on their experience and valuable knowledge of the business and its clients.

If that is to happen, be clear about how long you intend to stay on for, in what capacity and whether you expect to be paid.

If the business is to be taken over by a child, get separate legal advice from the outset. It is a mistake to use the same lawyer because you need to know that the person giving the advice is not only being impartial but is thinking solely about your interests.

When discussing all of these key points, make sure you have your exit strategy clearly outlined in writing. Situations are more likely to become heated if parties aren’t aware of the expectations from the start.

If you get it right from the beginning, it is less likely a lawyer will need to step in.

Justin Dowd is a partner at Watts McCray family law specialists.






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Western Sydney Business Access (WSBA) covers the business and community issues of the Greater Western Sydney region of Australia. WSBA is the popular media source for connecting with the pulse of the region and tapping into it's vast opportunities and networks.