Business exit agreements

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Business exit agreements

  1. 1. BUSINESS EXIT AGREEMENTS<br />(It’s hard to make money without one but getting one needn’t be hard)<br />Presenter:<br />Ian Tindale – Director – redchip lawyers Pty Ltd<br />ian@redchip.com.au<br />Ph: (07) 3852 5055<br />
  2. 2. Agenda<br /><ul><li> How to get a Business Exit Agreement (“BEA”)
  3. 3. How to engage with a lawyer
  4. 4. What information a lawyer will need
  5. 5. How to make sure it happens – driving the process</li></li></ul><li>redchip lawyers<br /><ul><li>1996 - Created by Gavin Barnes
  6. 6. 2000 - I joined the firm
  7. 7. 2005 – redchip created the Estate Planning & Business Succession as a distinct area of practice within the firm</li></li></ul><li>Takeouts for you<br /><ul><li> This is a process not just a sale
  8. 8. Someone needs to control & drive the process
  9. 9. Identify who is the best person to drive the process
  10. 10. You can see how to make it happen
  11. 11. Ensure you are comfortable that you can initiate the legal process of getting your clients a BEA</li></li></ul><li>What is Business Exit Planning?<br />Providing for your departure from your business, whether it is your decision or not.<br />
  12. 12. Types of Business Exits<br /><ul><li> Administration/liquidation
  13. 13. Business sale – sale to third parties
  14. 14. Introduction of new partners
  15. 15. Management buy out
  16. 16. Retirement and partner buy out
  17. 17. Sacking and compulsory buy out
  18. 18. Involuntary sale and buy out – death, permanent disability </li></ul>Good Business Exit Planning deals with all these types of exit possibilities. <br />
  19. 19. Insurance Funded Business Exits<br /><ul><li> Involuntary sale and buy out due to death, permanent disability or trauma
  20. 20. The purchase price is funded by insurance
  21. 21. The whole arrangement is governed by a BEA AKA Buy/Sell Agreement </li></li></ul><li>How do I get a BEA for my client?<br /><ul><li> Need a lawyer to draft legal document
  22. 22. It is a process, not simply a sale
  23. 23. There is no off the rack solutions
  24. 24. Find out if client has a lawyer and if they specialise in this area
  25. 25. Need a lawyer who understands the issues</li></li></ul><li>What is the process?<br />Refer to Workflow Sheet hand out<br /><ul><li> Meeting with advisors
  26. 26. Information gathering
  27. 27. Advice given
  28. 28. BEA drafted
  29. 29. Insurance written
  30. 30. BEA signed and finalised
  31. 31. Subsequent reviews (annual)</li></li></ul><li>How to engage a lawyer<br />Q1. Who is the lawyer’s client?<br />Q2. Who gives the lawyer the instructions?<br />Q3. To whom is the lawyer responsible?<br />Q4. Who pays the lawyers bill?<br />Answer: Your Client<br />You need to have your client engage the lawyers to prepare the BEA<br /><ul><li> You need to be pro-active for your client and assist them to find a lawyer who can do this work.
  32. 32. You should then arrange the initial meeting with the lawyers and your client and you must attend.
  33. 33. You must be involved in the information gathering process.
  34. 34. The advice of all advisors must be consistent – so share it.
  35. 35. You must make sure it happens.</li></li></ul><li>Work Flow Sheet<br /><ul><li> See hand out.
  36. 36. If used properly, you will achieve your objective.</li></ul>Remember<br /><ul><li> Clients will take out the insurance – without signing a BEA.
  37. 37. Client’s won’t sign a BEA without taking out the insurance
  38. 38. Aim is to complete the process – to ensure client gets required outcome</li></li></ul><li>What information does <br />a lawyer require?<br />See Business Exit Agreement Checklist<br />What issues will a lawyer confront and need to advise on?<br /><ul><li> What is the business structure?
  39. 39. Who should own policy?
  40. 40. Who should pay for premiums?
  41. 41. What trigger events will be insured? Death, TPD, trauma?
  42. 42. How are trigger events defined? See policy terms
  43. 43. How is the business interest to be valued?
  44. 44. What will the business need to continue trading post exit?
  45. 45. Is valuation greater than insurance cover? If so, what happens then?
  46. 46. Are all business owners insured?
  47. 47. What if insurer fails to pay out?
  48. 48. What about other business succession scenarios?</li></li></ul><li>What’s next?<br /><ul><li> Written advice from lawyer</li></ul> - confirming facts and history<br /> - describing business structure<br /> - advising on all relevant issues listed in previous slide<br /> - summary of how BEA works<br /><ul><li>Prepare BEA – lawyer
  49. 49. You - write insurance
  50. 50. Finalise, sign and pay</li></li></ul><li>Questions?<br />
  51. 51. Summary<br /><ul><li> Process – own it
  52. 52. Be proactive
  53. 53. Don’t just refer client to a lawyer
  54. 54. Don’t abdicate responsibility for BEA to a lawyer
  55. 55. Use the workflow sheet for each client matter and see it through to completion
  56. 56. Make all parties accountable for doing their part of the process</li></li></ul><li>Close<br />Feel free to contact redchip if you have any queries or need help.<br />Remember<br /><ul><li>clients will buy insurance without a BEA
  57. 57. client won’t sign a BEA without insurance</li></li></ul><li>Structures<br />Partnership of individuals<br />Company<br />– shares held by individuals – directors<br />– sharesheld by spouse<br />– shares held by family trusts<br />Unit Trust & Trustee<br />– units held by individual<br />– unitsheld units by family trust<br />– trustees – individuals<br />– trustee is corporate (see above for company variables)<br />
  58. 58. Structures<br />Partnership of discretionary trusts<br />– individual trustee/s<br />– corporate trustee/s<br />– same corporate trustee <br />

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