What is Litigation Risk?
Litigation risk is the possibility that legal action will be taken against an individual or company. Litigation risks can expose your business and family to reputational harm and serious disruption to day-to-day operations. Without proper guidance and protection, businesses may face challenging legal battles as a result of poor estate planning.
Litigation Risks in Estate Planning For Business Owners
- Contested Wills
Even a valid will may be contested, which could interfere with the execution process. In the case of being contested, sound legal guidance and proper documentation are crucial to mitigating further claims and conflicts.
- Succession Conflicts
Without a plan in place for succession or management of a business, legal action could be taken by owners or heirs. Disputes over control can freeze bank accounts, delay decisions, and in extreme cases, force the business to shut down. Proper estate planning will include an outline for how the business will continue in the event of an owner’s death, incapacity, or retirement.
- Partnership/Shareholder Disputes
Businesses with multiple owners may encounter conflict over shares, valuation, and management. To provide protection and security for all partners and/or shareholders, Buy-Sell Agreements and Valuation Clauses are two valuable inclusions to partnership agreements.
- Buy-Sell Agreement: determines how a partner’s shares can be bought and sold.
- Valuation Clause: clarifies a method for valuing the business
- Tax-Related Disagreements
When shares and assets are transferred, significant tax implications often arise. This includes capital gains tax and goods and services tax. In some cases, insurance proceeds paid to the affected party may also give rise to tax liabilities. Without proper planning, these taxes can be triggered, which can harm the value of the estate and lead to disputes.
Our Services
The best way to mitigate litigation risk is to practice risk management and take proactive measures by creating valid and effective wills, trusts, and estate plans. At OpenLegal, our team is equipped to assess your litigation risks and take appropriate action to protect your business interests.
Contact OpenLegal today at enquiries@openlegal.com.au or 1300 937 574 for a confidential consultation to discuss your situation and explore the best path forward.
Hope Jordan, Intern at OpenLegal
