Business Succession Planning

What happens to your business when you die or become disabled? Most business owners are flat out managing staff, payroll, creditors, customers and technical changes, which means there is little time left to plan for risks. Here are a few suggestions in getting things sorted:- 1. Enduring Power of Attorney – Get this signed and make sure it covers trusts and companies as well as your personal capacity for financial and health matters; 2. General Power of Attorney – Where appropriate, you should sign a General Power of Attorney if you are sole Director of your company to make it easier to deal with banks and other companies with whom you contract; 3. Insurance – Get insurance to cover at least part of your business debt level, cash flow requirements for 6 months and immediate expenses. In terms of goodwill, if you have a shareholder or partner you must insure for the value of your business interest or equity. 4. Business Succession Agreement – You must have a written agreement with your shareholders or partners that provides for a conditional grant of an option to acquire the balance business from you or your family trust as owner of the share. If it is not written correctly, stamp duty and capital gains tax will rise as at the date of the Deed leaving a worse revenue outcome for your family. 5. A Valid Will on the best terms – Everyone should take the opportunity to prepare a valid Will that covers all of their circumstances including business interests companies, shares, trusts and property, on terms that provide the best outcomes for their family. It is a...

Corporate Governance

I recently attended the Australian Institute of Company Directors Course at Customs House and was inspired by an excellent program. It seemed to me that companies and how they manage their business are all bound by the same principles and affected by many of the same issues. Here are a few points worth considering: 1 Culture: Someone said “culture eats strategy for breakfast”. Maybe they are right and it takes strong and focused leadership to ensure culture develops in the right way. Make the rules about how you do business known and live by them as a Director; 2 Strategy: Without really knowing and understanding what you are about you cannot ever hope to reach your goals. Have a formal session each year and if you need it, get an external facilitator. make sure the team understand it so they can explain it in one sentence in a lift. Refresh this every year; 3 Financial Competency: The learning examples used included a family business secured by a family home with a basic balance sheet. As a Director if you cannot understand the numbers using 8 simple steps then you should resign.It is being able to read what is happening to a company that drives those numbers so you can make critical decisions; 4 Effective Decision making: As a key platform all business owners have to make decisions. By having a structured  process every time you are far more likely to make superior decisions for the long term sustainability of the enterprise. 5 Compliance & Risk: If you do not know the legal and accounting compliance and risk requirements then...

Avoid Disaster with your SMSF

Is your Self Managed Super Fund a disaster waiting to happen? Wow! What a question! If you are like most of our business and investor clients, then you will have already established a self managed super fund (SMSF). I wonder how that came about. Did your financial advisor tell you about the benefits? Was it your accountant just trying to save you capital gains tax on a sale of a significant asset? All SMSFs are established with a set of rules contained in a Trust Deed. The Deed is vital to the operation and compliance of the fund. We want to alert you to problems that can arise with  SMSF Deeds and what you can do about it. Establishment of the fund When the Trust deed is prepared it will have a section in which the Trustees need to sign to accept their role and confirm the terms of the deed.  Signing these papers might seem simple but common mistakes can cause a great deal of problems and costs later on.  A couple of common mistakes are: The proposed trustee signs the deed ‘as trustee’ rather than personally; The date the Deed is signed is before the proposed corporate trustee has been established. Signing as ‘as trustee’, cannot occur until the formal establishment of the fund has been completed. Questions as to the proper execution of the deed and the capacity in which the deed was signed can arise if you get it wrong. Secondly, a company cannot be taken to have properly executed a deed if the date of the document is a date earlier than the incorporation...

Crowdfunding Laws Bring an Exciting Change

Last year, the Federal Government announced it would introduce new laws to enable “Mum and Dad investors” to invest directly in start-up companies. Some of the changes to existing laws include: a 5 day cooling off period; an increase in the allowable cap on funds to be raised; a higher level of money to be held, up to $5 million. The Corporations Amendment (Crowd-sourced Funding) Bill 2015 aims at allowing small companies to attract investment in their business by the public injecting equity via “crowdfunding” as an on-line method. This is a revelation in the prior laws and runs against the regulations and political background which have resisted this method of capital raising. The key amendments are to the Corporations Act 2001 and will provide for a large number of shareholders to apply for shares in return for share capital in the start-up companies. Despite this forward thinking development in the law there are some sections of the business community that have expressed frustration with the proposed laws on the basis they do not go far enough and impose too many restrictions. The experience in other countries, such as Israel, point to alternative methods which are faster and less regulated in the process of raising essential capital for these new companies. As a form of consumer protection, the Australian legislation now requires that investors must go through appropriately licenced crowdfunding procedures. These procedures require a high level of due diligence on the proposal, to avoid likely misleading or deceptive conduct by company promoters. The public as investors are “consumers” under the Act and are strongly encouraged to seek their...
Family Trusts Part 2 – How You Can Plan for the Future

Family Trusts Part 2 – How You Can Plan for the Future

It is of great interest to us and most of our clients, how a Discretionary Family Trust dictates what will happen to their assets in the future. Most of our clients use Family Trusts as a wealth creation vehicle giving the flexibility for income distribution and Capital Gains Tax. It is really critical to understand that the assets within a Family Trust are not owned by the individual rather it is a control over the management of the trust and exercise of discretion as trustee that dictate the outcome. Consider the recent high profile case of Gina Reinhart in the dispute with her children over the control of the key trust that owned significant business interests. The “appointor” is the named individual that can appoint or remove “trustee” of the trust. The trustee has the day to day management and control of the trust and exercises discretion about business or investment decisions. However, if there is a dispute then the appointor can remove the trustee and insert a replacement trustee. It is vitally important that clients have the Trust Deed reviewed to check exactly who the appointor is and if they die, become disabled or insolvent, who in default will be appointed in that role. The last thing you want is for a trustee in bankruptcy to be controlling all of the assets and exercising the discretion to pay creditors. In addition, it is difficult for clients to dictate from the grave what will happen to those trust assets in the future on their demise. So what happens after you are dead to the property, money and shares you...
Family Trusts Part 1 – Who is in control of your Family Trust?

Family Trusts Part 1 – Who is in control of your Family Trust?

We often see Family Discretionary Trust Deeds which were set up several years (or event decades) earlier.  It is often overlooked that circumstances may have changed significantly since the Trust was established and that the ultimate controller of the Trust may not be the expected person. The case of Kniepp v Annuaka Pty Ltd  last year is a reminder of the potential risks. In that case, a Discretionary Trust established in 1991 named a deceased’s first wife as the person with the power to change the Trustee of the Trust (sometimes this person is called an ‘Appointor’). Despite divorce in 1995, the first wife’s power was never dealt with or removed. 19 years after separation she attempted to exercise her power to seize control of the Trust Fund. Although she was not successful on account of jurisdictional issue and interpretation of the specific Trust Deed in this case, the risk was real and potentially disastrous for the last family of the deceased. The person with power to change the Trustee of a Discretionary Trust can often be forgotten about over time. It is a case of ‘out of sight, out of mind’ unless the Trust Deed is reviewed periodically.   There is also a tendency to view Discretionary Trusts as ‘carbon copies’ of one another with identical functionality and governing rules. However, the precise terms of the trust deed are critical and we recommend to all our clients that Discretionary Trust Deeds are reviewed every few years to ensure it is appropriate given the current Law and individual...