If you’re reading this, chances are you’ve poured your heart and soul into building a thriving family business in Western Australia. From Perth’s bustling suburbs to the remote corners of the Kimberley, the heart of the Wheatbelt, or the lush pastures of the Great Southern, family businesses and farms are the backbone of our State’s economy and community.
But let’s have an honest conversation about something many people put off—what happens to your business when you’re ready to step back? We’ve seen too many local success stories stumble at this crucial juncture, with hard-earned legacies unravelling due to a lack of proper succession planning.
Two real-life scenarios
Mum’s real estate business in Cottesloe has done really well
The business has produced stellar income that has supported three generations; setting her and her husband up for life, helping her sister with a property, putting her kids through school/university and is helping them into their own properties, along with a locked-and-loaded education and property fund in place for the grandkids. Retirement is looming, and succession conversations have been informal and have not yielded an outcome.
We step in, along with the family’s other critical partners including their accountant and financial advisor, and work through a series of meetings and discussions which ends up with each child wanting to continue their own careers outside of real estate.
A third-party board of Trustees is created through a clever Testamentary Trust to run the business indefinitely, with the right mechanisms in place should a sale be considered down the track. The wealth from the business is also transitioned to each of the children over time, and cleverly and respectfully ringfenced from partners to protect it from any potential relationship breakdowns in the years ahead, best protecting it from dispute or challenge once Mum has passed away.
“One day all this will be yours”: The family farm
This scenario is causing untold difficulties and suffering for rural families across the nation. In Western Australia, we are seeing enormous increases in Supreme Court litigation involving farms both against deceased estates and during the life of the farm owner.
These cases invariably involve a valuable farm that has been worked by multiple generations of the same family. Ultimately what happens is that the younger farmers have worked on it for years—not getting paid or being paid well under fair rates—whilst investing their lives, time and often their own money in improving the farm. All this effort stems from a vague but nonetheless well-understood promise made in the past that sounds a bit like this: “Don’t worry son, I’ll look after you during life and when I die, all this will be yours.”
Then the crushing reality hits either when the Will is read and the promise is not honoured, or is partly fulfilled in a way that does not match the effort expended in reliance on the promise, or where there is a fight between father and son and some rash things are said and the relationship crumbles. At which point the son then demands the promise be fulfilled and the farm be handed over, and off to court we go.
The legal principle of promissory estoppel is tripping up so many founders and their next generations as promises were simply not put in writing.
The good news? With thoughtful preparation and the right legal steps, you can ensure your family business thrives for generations to come. Let’s dive into how to make that happen.
Why succession planning matters—especially in WA
Western Australian family businesses face unique challenges (and opportunities) from our geographical isolation and incredible wealth to our entrepreneurial spirit and State-specific regulations. Many local businesses we work with started as small operations just one generation ago, then grew substantially over decades, making the transition to the next generation particularly complex.
Without proper planning, the commonly cited statistics are sobering: only 30% of family businesses survive to the second generation, and merely 12% make it to the third.
Essential successful succession steps
1. Start with honest, open and regular family discussions
If you are involved in a family business—no matter its nature—the need for regular family group conversations is paramount. If you are a child working in the family business and there is resistance from the patriarch or matriarch for open discussion regarding succession planning, you should push back and try to insist.
This is because when there is a joint endeavour, and the family is working together in an enterprise, the family business is not the sole asset of the head of the family—even if that one head of the family is the legal owner/sole controller of the business and/or assets used in the business. All family members who work in the business or on the farm are members of the enterprise, and are likely to have some sort of equitable ownership of that business by virtue of their labour, and in reliance on promises made over many years.
To ignore other equitable co-owners and dictate a succession plan, which is then handed down as an edict, is folly. It often won’t succeed because it doesn’t contemplate all vested interests.
Family group meetings are essential, even though they are tough and often unpleasant. These meetings reveal all the hard truths that lay under the surface, and it’s only then that all the fibres can be woven together into a succession plan that gives everyone what they need.
Another more common aspect of complex family dynamics in estate planning is the Family Office. Increasingly common in WA’s wealthiest families, the Family Office is essentially the business that controls family wealth, invests it, and makes key decisions. It also usually decides how to make distributions of income and capital each year, to what can be a very large number of beneficiaries who are supported by the family wealth. The Family Office often has its own CEO and staff who offer invaluable support and wisdom in the succession planning process.
2. Create a comprehensive business succession plan
A solid succession plan is your roadmap for transition. While every Western Australian business is unique, your plan should typically address:
- Timeline for transition: Will it be gradual or occur at a specific point?
- Leadership transition strategy: Who will take over various roles and responsibilities?
- Knowledge transfer process: How will critical information be passed along?
- Contingency plans: What happens in unexpected situations?
Remember that succession planning isn’t just about retirement—it’s also protection against unexpected events like illness or accident, which we know can happen to anyone.
3 Update your business structure
Many WA family businesses start as sole traders or simple partnerships but then outgrow these structures. Review your current business structure with a legal professional to determine if it still serves your succession goals.
Options to consider include:
- Family Trust: Popular in WA for tax benefits and asset protection
- Company structure: Facilitates clearer ownership transition through shares
- Partnership agreement: Essential if multiple family members will co-own the business
Each structure has different implications for succession, tax, and asset protection under Western Australian law.
4. Establish clear ownership transfer mechanisms
Legally documenting how ownership will transfer is crucial.
This might involve:
- Buy-sell agreements: Establishing terms for purchasing business interests
- Shareholder agreements with pre-emptive share transfer provisions: To give things the best chance of going well, in accordance with agreed frameworks established well before any dispute is on the horizon
- Vendor finance arrangements: If the next generation will purchase the business over time
Without these mechanisms, ownership disputes can tear apart both businesses and families. We’ve seen local businesses use creative solutions like gradual transfer of ownership tied to performance milestones—a win for both generations.
5. Integrate with your estate planning
Your business succession plan must work hand-in-hand with your personal estate planning.
This means updating your:
- Will
- Enduring Power of Attorney
- Binding Death Benefit Nominations for superannuation
- Insurance policies
This integration ensures your business intentions align with your overall legacy plans. A Perth-based client recently shared how relieved they were after finally aligning these documents after years of procrastination—their words: “I finally sleep soundly at night.”
6. Address tax implications early
The tax consequences of business transition can be significant. Work with an accountant familiar with Western Australian business structures to address:
- Capital Gains Tax considerations
- Small business CGT concessions
- Stamp duty implications (particularly relevant in WA)
- Potential restructuring to minimise tax impacts
Planning these aspects early can save your family significant money and stress during the transition.
7. Create a written succession agreement—your family manifesto if you like
Finally, document everything in a formal succession agreement that covers:
- Specific roles and responsibilities during transition
- Timeline for handover
- Conflict resolution mechanisms
- Emergency succession provisions
- Review periods to assess how the plan is working
This document becomes your family’s guide through the transition process and helps prevent misunderstandings or disputes.
Bringing it all together: the human side of succession
While the legal steps are crucial, remember that business succession is ultimately about people. The most successful transitions we witness balance legal precision with genuine care for family relationships.
Take the first step today
The best time to start succession planning was when you founded your business. The second-best time is today. Begin with a family conversation, then reach out to us—along with your financial professionals, we can work arm in arm with you.
Your family business legacy deserves the care and attention that thoughtful succession planning provides. Your future self, your family, and the community that benefits from your business will thank you for it.
The fallout and damage of poor succession and estate planning can break families and destroy businesses—echoing for many generations. When done well, the effects are one of the greatest gifts you can give, and can be life-changing for generations to come.
