Wills for Business Owners
As a business owner what steps have you taken to protect your business and family in the event of the death or loss of capacity of an owner?
Without the full and proper protection in place, you are leaving your business, your business partner and your families exposed.
Your business could be forced to close
You could lose control of the business
Your family could receive an unfair value of your business
Your family could pay unnecessary taxes
You could be having to support the spouse of a deceased partner or shareholder as well as your own
Do you have a Business Partnership?
If the Partnership Agreement and an appropriate business will does not specify what is to happen on the death of a partner, the surviving spouse could inherit the deceased's share. This could mean that your business has partners in it who have no interest or expertise in the business, but are entitled to a share of the profits
This applies no matter how long the partnership has been in existence. Not only do the surviving partners lose a work colleague, they could also also lose their business.
If the plan is for the business to continue beyond the death of a partner, then the Partnership Agreement should reflect this and also an appropriate agreement to buy the deceased's share of the business.
A business power of attorney will also ensure that the business can continue to run as normal if one of the partners loses capacity to perform their duties. This is of great benefit to the other partners, particularly in times such as the recent pandemic.
Ownership of a limited company is represented by a shareholding. On the death of a shareholder the company does not cease to exist - it is by law a separate legal entity.
Unless a document exists to the contrary (e.g. Pre-emption rights contained in the Articles of Association) the deceased’s shares will be distributed in accordance with the ‘Laws of Intestacy’ if no valid Will was made, or in accordance with the deceased’s Will if a valid Will was made.
This can have unexpected results. The deceased’s surviving spouse can end up having the controlling share of the business.
It is often best to include arrangements for the buy back of shares on the death of a shareholder into the Shareholders agreement.
A shareholders agreement sets out how the business will be run, what happens to the profits and the the number of shareholders, as well as much more. It is very important to ensure that the agreement includes the arrangements on death or loss of capacity of a shareholder.
A business power of attorney should be considered for all key owners, so that an appropriate attorney can act immediately in the event of an owner being incapacitated. With no attorneys appointed, the Office of the Public Guardian takes charge. This can mean months of delay in appointing an attorney, who, may lack the skills and expertise and not be who you would choose. This also has great cost implications and possible loss of the business.
What Can A Will Do (for a business owner)?
In addition to the many reasons why adults in general should make a Will, a business owner has even more compelling reasons for doing so.
For a business owner a professionally drafted Will could: grant additional powers to your executors - so they can:
Continue to run the business instantaneously from the time of the testator’s death (without a Will incorporating the necessary powers the executors would not be able to continue to run the business until Probate has been obtained). Obtaining Probate can take many months, by which time the business may have failed.
Continue to run the business beyond the 12-month deadline
Sell the business
Collect the monies owing to the business
Be paid where appropriate
Be indemnified by the estate for any decisions they make
Many people appoint their spouse, or a family members to be their executor. However, these people may not have the expertise and skills needed to continue your business? In addition, your loved ones will be mourning your loss and may not want to keep the business going. It maybe better to have an executor who will specifically deal with your business assets.
There are also Inheritance Tax allowances for business property and so consideration of a business will and business or agricultural property trust fund can be advantageous.
Business Succession Planning
With the correct business succession planning and documents you, your family, your business and your business partners/owners can be safe.
Virtual Wills, Trusts &
Lasting Powers of Attorney
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