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Make a Business Will part of your business succession plans

For the owner, partner, or shareholder in a business – Business Succession Planning  – is essential. There is a great deal to consider, however; let’s focus on some elementary matters. Death and taxes.

If you die while running a business and have no Will, then government statute dictates what happens to your business assets, or your share of the assets, when you die.  It has many of the problems that a private individual experiences having died intestate (ie. without a Will) – with the added stress and costs of the business.

Even if you have made ‘a Will’, the wrong formula can really foul things up for your family and business survivor(s) because essential matters are often ‘assumed’, neglected or not addressed.  Family beneficiaries and the boardroom do not usually mix well, because they are not usually part of the company and, a great deal of unhappy people will ensue.

To minimise inheritance tax liability, while maximising family heritable tax exemptions, your family and business survivors’ interests need to be kept separate, to not adversely affect each other on your death.

Business Ownership and The Will

Business owners tend to have a poor understanding, if any, of the consequences of their venture upon the family, other than the weekly/monthly profit for the company.  The tendency is to listen to the hearsay of the ‘guy in the pub’ and assume – especially with what happens to the business in the event of their death or when disaster strikes.

Disaster Recovery systems are not only for when the company computer system dies, when you need it most.  The ‘other’ disaster recovery system is needed for business succession and continuity when – you die.  It ensures that the ‘owner’s family’ and company community is not ruined by assumption.

As the saying goes – “prevention is better than cure”.  And, it’s vastly cheaper too.

The typical scenario when the business owner dies without a valid Business Will is called ‘business intestacy’.  It can apply equally in cases where a family Will exists and is not appropriate, or, where a family Will is absent.

These are highly complex matters of tax and law.  It cannot be assumed and expected that it will work the way that you want.  So, while you still can – take advice.

Business Ownership and Power of Attorney

Another part of Disaster Recovery systems in business, is vital when you are not able to act in/on your business, due to absence through doing business abroad, or,  due to absence through accident or illness.

a)  Lasting Power of Attorney (LPA)

Mental incapacity can affect anyone, anytime – it is not the exclusive province of the elderly and infirm.  Due to the law that protects the ‘mentally incapacitated’ person, anyone who is to act on their behalf needs to be authorised by them, before the event.  The medium by which this can be done is call The Lasting Power of Attorney  (LPA). It is valid upon registration with the Office of the Public Guardian until death or revocation, whichever occurs first.  It can be formulated to be either ‘open for all terms and conditions’ or restricted to specific duties.

b)  General Power of Attorney

An alternative, or addition to the LPA, is a General Power of Attorney.  It has many of the features of the LPA with the addition of other options and powers.  A principal difference is that its authority is valid upon signature, without the need to wait for registration.  However, its power will expire at the time you lose your ‘mental capacity’ and if you do not have an LPA in force, the law under the Public Guardian will apply, with the consequences of cost and delay.

You could therefore have one or both, depending upon your needs to keep your business running; for when and how, you let go the reins.

In addition, the insurance industry has a product that pays out cash to compensate a company for the loss of a key individual to the company.  It is called ‘Key Man Insurance’.  It does not cover nor replace any of the facilities of a Power of Attorney.

If you have concerns about your Will and Estate in general, or would like to know more about it, and how the law might affect you, then feel free to contact us for a confidential discussion  on 0118 9 740 130. 

How might Business Intestacy effect me?

A Sole Trader

A Sole Trader dies leaving his estate to his spouse without making any mention of his business. Does his spouse inherit the business? Is she in position to sell it, or carry on trading?

Yes, after probate has been granted. This may be several months –or longer– down the road, depending upon the value, status and nature of the business.

The value to the family is relative to what can be done before the event, to retain the value of the business as a going concern or possibly sale.

Much better to have discussed and understood it in detail and mapped out a plan before-hand that avoids panic, expense of administration and upset.

A Partner

A Partner in a business dies leaving his estate to his spouse without making any mention of his business. There is no Partnership Agreement. Does his spouse inherit as a partner in the business? If not, what prevails?

The ‘partnership’ is dissolved under the Partnership Act and its ‘assets and debts’ divided equally between the surviving partner(s) and the estate of the deceased partner. The surviving partner(s) and the beneficiaries of the estate can then decide what they want to do relative to the business status i.e. whether the business is in credit or in debt.

Much better to have discussed and understood it in detail and mapped out a plan before-hand that avoids panic, expense of administration and upset.

A Director of a Limited Company

A Director of a Limited Company dies leaving his estate to his spouse without mentioning the business. Does his spouse automatically inherit his shares and is she in a position to sell them or carry on trading?

A director is an employee of the company with no interest in ‘the business’. It is the shareholder(s) who own the business. They may also be director(s). His shares are assets and will form part of his estate and be distributed according to the Will.

IF – the Articles of Association of the company do not want the shares to be dealt with differently.

The value to the family and the other share-holders is relative to what can be done before the event, to protect the company from collapse. A demise of the company by competitive and conflicting interests is a definite threat without appropriate plans.

Much better to have discussed and understood it in detail and mapped out a plan before-hand that avoids panic, expense of administration and upset.

If you would like to know how the law might affect your individual family & business circumstances, then feel free to contact us on 0118 9 740 130 for a confidential discussion.

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