Why should business owners have a Will?
Your business is a valuable asset that you have worked hard for. It is therefore important to have a well written Will to ensure your business passes on to the person or people you want to inherit it. Without a Will the future of your business may be jeopardised as a result of it passing to someone who has no interest in it. Alternatively, it may pass to more than one beneficiary with conflict then arising about what to do with it.
Who will run my business?
In the immediate aftermath of your death it is important that your business is still able to trade and function with the minimum of disruption. You should ensure that any surviving directors, partners or employees are able to take on this added responsibility, even in the short term until longer term arrangements have been put in place. In some cases, keyman insurance can be obtained.
A sole trader business will end following death, but that does not mean you shouldn't have a Will in place. Whilst the business itself will end, your Will can still deal with the disposal of any goodwill of the business and any assets that you have acquired for the running of the business (e.g. vehicles, equipment etc.). You may therefore decide to leave all of your business assets to someone in particular who you know will use them to re-start a sole trader business in their name.
What about partnerships and limited companies?
Partnership and Limited Company interests can be more complicated to deal with following your death and discussing this with both a commercial lawyer and a lawyer specialising in Wills is essential. A partnership and most limited companies will involve other partners and shareholders respectively.A well drafted partnership agreement or shareholders' agreement will regulate what any partner or shareholder can do with their share of the business following their death. It could be that you direct that the other partners or shareholders have the right to buy out your interest if you die, with the sale proceeds passing to a beneficiary of your choice.This arrangement can be legally regulated by what is known as a cross option agreement. This prevents business interests passing to a beneficiary in your Will who may not be suitably qualified or inclined to deal with the running of your business.
Are there Inheritance Tax Issues?
As the value of your business forms part of your estate, there may well be an Inheritance Tax liability if the value of the business added to your personal estate exceeds the available allowances. This could potentially result in the business having to be sold by your Executors to meet the Inheritance Tax liability. However, some business interests qualify for relief from Inheritance Tax. A well drafted Will can maximise the reliefs available to you and in the process safeguard the long term future of the business.
If you have any concerns about the succession of your business and the Inheritance Tax implications, please do not hesitate to contact us and one of our Private Client team
will be more than happy to help.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.