Being involved in running a small or medium sized enterprise often focusses on the business itself, dealing with day to day administration and looking for opportunities for growth. But what about the people involved in owning and running it? What would happen if they were suddenly no longer there?
The business itself can represent a significant part of the value of the estate. There may be vital succession implications for family businesses, for instance where one child has been involved in the business for years on the understanding they will inherit.
Some businesses are more vulnerable than others to the loss of key figures. Without a partnership agreement, any partnership comes to an end on the death of a partner. This can create an unwelcome interruption to the operation of a business. In any business, the overreliance on an individual to fulfil a key role can also cause problems.
If you own all or part of a business you may need to review your Will. You should consider who is best placed to deal with your estate if their role will involve overseeing the running of the business or it’s sale or transfer. It should be someone familiar with the operation of the business who is also able to look after the interests of those you wish to leave the business to.
The Will itself should contain an appropriate clause to gift the business interest. If that interest is meant to be offered for sale to your business partners then it should usually contain an option clause. It should also contain the extra powers Executors and Trustees need to effectively run the business until it can be sold or transferred.
What happens on the death of a Partner or Shareholder is often agreed in advance and contained in a Partnership or Shareholder Agreement. Great care must be taken in drafting these documents to make sure they do not scupper any claim for Business Relief from Inheritance Tax.
If you are the sole proprietor or a sole trader you should keep an up-to-date plan for the continuation of the business. Your Executors will need to know your key contacts (customers and suppliers, accountants and professional advisers, tax information, banking details). Clear records of debtors, creditors and outstanding contractual obligations should be accessible. A list of online passwords should be kept in a safe place.
Insurance policies can help both businesses and estates cope with the loss of key personnel, funding the acquisition of a share in the business, the short-term replacement of the individual in the business and covering any potential Inheritance Tax liability.
If you would like advice on all or any of these issues then please contact the Wills, Trusts and Probate Department by email at firstname.lastname@example.org or by telephone on 01228 552222.