1. Succession Planning
Your Business’ Will
Prepared by: Graeme Horsley
Senate Group 27 June 2014

2. Needs analysed: a structured portfolio
Buy & Sell Agreement

3. Succession Planning
• Large part of Estate Planning
• Succession Planning includes:
 Personal Planning
o Planning for the division of the personal estate after death
o Provision for estate administration costs and settlement of debts
upon death
o Ensure that there is sufficient liquidity
o Provision for dependants and beneficiaries
 Business Planning
o Protection of business assets
o Continuity of businesses
o Securing the future of employees

4. The most vital tool in succession planning
is your will
Your business also needs a will to ensure
smooth continuity

5. Importance of a business will
• Who will take over the shares of the deceased owner ?
 An inexperienced heir?
 A competitor?
 A speculator?
• Will the dependents get a fair price for the shares?
 What is the impact of the death of the shareholder on the value of the
business?
 How will the business be valued
 Fire Sale
 Is creditworthiness affected?
• Will there be sufficient funds to purchase the shares?
 Will the surviving owners be able to afford the shares?

6. Importance of a business will
• Will there be sufficient income during liquidation?
 How will the income of the beneficiaries be influenced by the
liquidation of the business?
 Will the business be able to sustain its employees during this time?
 Will the estate be delayed due to the process of finding a buyer or
liquidating the business?
• WILL the surviving owners have sufficient capital to
start again?
• WILL the beneficiaries be forced to sell personal
assets to support the business or to supplement their
income?

7. Business Will
• It is an agreement:
 Between the shareholders/members/partners of a business entity
 Obliges them to sell their interest on their death/disability to the
survivors and
 Obliges the survivors to purchase the interest from the deceased
estate
• Funding of the agreement is essential
• What separates B & S from MOI and Shareholders agreements

8. How does it mitigate the
risks?
• The Agreement provides for:
 An acceptable buyer
o The surviving members will purchase the deceased’s interest
o Protects their business interests
o Prevents unwanted outside influence
 At an acceptable price
o Purchase price or Valuation method is predetermined
 With sufficient cash
o No need to raise capital
o Funds are readily available
o Dependents have capital to invest for income

9. Tax Implications
• Income Tax
 No income tax relief on premiums paid by shareholder
 The proceeds are received tax-free
• Estate Duty
 If structured correctly it will not add to your estate duty concerns
 3 “P”
 At time of death must be “Partners”
 “Purpose” of the policy is to buy each other out
 Sometimes the partners over insure and elect to keep
the “change”
 Life assured must not pay “Premiums” on his own life

10. Other interesting points
• What if the shareholder is the only shareholder?
 Can enter into a buy and sell arrangement even if all the parties are
not co-shareholders ex. An employee
 May be tax implications that must provide for
• What happens if the business is terminated?
 Cede the policies back to the life insured
• Preferably only insure for death and disability
• If you can’t make sure the agreement is adjusted
• Off the shelf agreements can cause problems
• Sometimes tired benefits are unavoidable
• Terminal illness benefits
• Partner with someone who can provide unique agreements

11. Other mistakes that lead to
opportunities
• An unsigned agreement or no agreement
• Shareholders agreement or the MOI contradicts this agreement
• Important since the New Companies Act has been enacted
• The policies are in place but owned by the business or have beneficiary
nominations
• Premiums are claimed as a tax deduction
• Client will have to resubmit tax returns
• Penalties
• Company pays premiums and not accounted for properly
• Estate Duty Implication
• Shares are over/under-valued and the policies’ values are incorrect
• How does the buyer fund the shortfalls
• Donations Tax
• What value will the executor use to calculate CGT and Estate Duty

12. Death of the Shareholder
Parties A B and C equal shareholders in the business
owning life assurance in proportion to the respective
shareholding

13. Death of the Shareholder
Party C dies /becomes disabled and exits the business

14. Death of the Shareholder
Party A and B become the new equal shareholders in the
business
Increase cover (now 50:50)

15. Any Questions???