For many business owners, the focus is rightly on growth, innovation and profitability. But an often-overlooked element of long-term strategy is what happens when a key person departs—whether due to retirement, incapacity, or unexpected death. Without a clear plan, these transitions can lead to uncertainty, conflict, and even the failure of an otherwise successful enterprise.
A well-considered business succession plan ensures continuity, protects the interests of stakeholders, and supports the long-term value of the business. Three essential legal tools in this process are Buy/Sell Agreements, Shareholder Agreements, and Company Powers of Attorney.
Buy/Sell Agreements: Preparing for the Unexpected
A Buy/Sell Agreement is essentially a pre-agreed business will. It governs what happens to an owner’s share of the business upon certain trigger events, such as death, permanent disability, divorce, or retirement.
These agreements commonly include:
- Trigger Events: Death, total and permanent disability, critical illness, bankruptcy or voluntary exit.
- Valuation Mechanism: A pre-agreed method to determine the value of the business or shareholding at the time of the trigger event (e.g. a formula, independent valuation or fixed price updated annually).
- Funding Arrangements: Often backed by insurance, ensuring funds are available to buy out the departing owner’s interest.
- Transfer Obligations: Ensures the departing party or their estate must sell, and the remaining parties must buy, the shares and thereby removing uncertainty.
In the absence of a Buy/Sell Agreement, the business interest may pass to an unprepared or uninterested heir, leaving co-owners in limbo and the business in jeopardy.
Shareholder Agreements: Setting the Rules of Engagement
A Shareholder Agreement is a broader governance document, essential for companies with multiple owners. It outlines the rights, responsibilities, and expectations of each shareholder and provides mechanisms to resolve disputes, transfer shares, and manage deadlocks.
Key provisions include:
- Board composition and voting rights
- Pre-emptive rights on share sales. These rights give the other owners the first right to purchase a shareholder’s interest in the company if they want to sell their interest and sets out how that works.
- Drag-along and tag-along rights. These provisions allow for either a selling shareholder to require all shareholders to sell to a third party or a right for a minority shareholder to cause a selling majority shareholder to have to include their shareholding in the sale to a third party.
- Restrictions on competition or poaching
- Deadlock resolution procedures
Importantly, while Buy/Sell Agreements deal with exit events, Shareholder Agreements govern the ongoing relationship. The two documents should be aligned but serve distinct purposes. A good Shareholder Agreement is like a business prenup, it helps avoid disputes and provides clarity if relationships sour.
Company Powers of Attorney: Ensuring Operational Continuity
Unlike individuals, companies don’t die or become incapacitated. But they can still be paralysed if the key decision-makers are suddenly unavailable. This is where a Company Power of Attorney (CPOA) comes into play.
A CPOA allows the company to authorise an individual or corporate entity to act on its behalf in defined circumstances. This is especially useful for:
- Signing contracts
- Managing bank accounts
- Operating during a crisis or transition
- Ensuring continuity if directors are incapacitated or unreachable
It can be a powerful risk management tool, particularly for businesses with limited directors or founders who hold all key roles. Importantly an individual’s personal enduring power of attorney does not allow their attorney to act for the company even if the donor is a director of the company. The company has to grant the power to an individual.
Integrated Planning: Legal Documents as Part of the Bigger Picture
Business succession planning is not just a legal exercise, it’s a commercial imperative. Much like insurance for your business. The best results come when legal tools are integrated with financial advice, insurance planning, and frank discussions among stakeholders.
Some practical tips:
- Involve all key parties in the planning discussions.
- Review and update agreements as circumstances change.
- Align personal estate planning with business succession.
- Ensure the business structure (company, trust, partnership) supports your succession goals.
Final Thoughts
Succession is inevitable, planning for it is optional, but smart and important. With the right legal documents in place, business owners can create certainty for themselves, their families, and their business partners.
Whether you’re a founder, a co-owner, or a stakeholder in a family business, now is the time to review your succession plans. Our firm works closely with businesses to draft and implement Buy/Sell Agreements, Shareholder Agreements, and Company Powers of Attorney tailored to your structure and goals.
Contact us today to start the conversation about your business’s future.
About the Author: This article has been authored by Steven Brown. Steven is a Perth lawyer and director and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.
