If you’re considering exiting your business, it’s important to look beyond the deal itself. Nicole Chadwick, legal director in our wills, trusts and probate team, outlines the key planning steps to ensure a smooth and secure transition.
Too often, business owners focus only on the commercial terms of the deal, overlooking their personal legal and financial affairs. Yet, taking a proactive and coordinated approach to both can have a significant impact on the success of the exit.
Business Lasting Powers of Attorney (LPA)
Unexpected events can derail even the most carefully structured exit. If you or another key shareholder loses mental capacity during a transaction, and no safeguards are in place, the deal may be delayed or fall through altogether.
A Business Lasting Power of Attorney (LPA) allows you to appoint someone to make business decisions on your behalf if you are unable to do so yourself. This person can act in your place temporarily, helping ensure that critical decisions and negotiations can continue uninterrupted.
Without a Business LPA, a deputyship application would need to be made through the Court of Protection. This process can take many months and in the context of a business exit, this kind of delay could be commercially damaging to the transaction.
Putting a Business LPA in place provides a clear contingency plan.
Review your Will
You should review your Will on a regular basis; it is a vital part of your exit strategy.
Company shares will generally pass in accordance with a shareholder’s Will. Careful consideration should therefore be given as to how the shares would be dealt with if something happened before the exit was complete.
Your Will should take into consideration the company’s Articles of Association so that any pre-emption rights or restrictions on trustees holding shares can be considered and amended if necessary.
In some cases, a Cross Option Agreement should also be considered. This can give the company or other shareholders the option to purchase your shares from your estate, and ensure the funds are available to do so.
If no valid Will is in place, your estate will be dealt with under the rules of intestacy, which could lead to your shares being inherited by individuals who have no knowledge or experience of your company.
Succession planning
A carefully considered succession plan can help reduce your exposure to inheritance tax and ensure your wealth is transferred in a way that benefits your family without creating unintended consequences.
Many business owners intend to make gifts to family members following an exit. While gifting cash after a sale may seem straightforward, there may be more efficient ways of achieving the same goal.
It is also important to consider asset protection.
Without appropriate planning, wealth passed on during your lifetime can be lost through divorce, bankruptcy, or other unpredictable circumstances. Working with advisers can help you put structures in place that preserve family wealth for the long term.
At Harrison Drury, we have a team of experts in private client, family, corporate and property law to advise you through any type of exit.
For more information on preparing for a business exit or any other legal matters relating to succession and estate planning, contact our team on 01772 258 321.