Why every business owner should have a Will
Why is it important for a business owner to seek Wills advice?
As a business owner, if you were to die without an appropriately drafted Will in place this can create a number of significant problems for your business and those people that remain within or connected to it, including material loss of value, operational and management problems and disputes. It can also create issues for your beneficiaries and executors..
Sue Carlile, a specialist in advising business owners, directors and partners on business Wills and business Powers of Attorney, discusses the implications of not getting advice and having an appropriate Will in place that deals with both personal and business interests.
In the event that a business owner dies without an appropriately drafted Will:
- There may be no-one with authority to run the business, make key business decisions, deal with banks, accountants or other institutions or even sell it, at least for many months (potentially years) until legal issues can be resolved. During such a period of uncertainty, key employees may leave, market share may be lost to competitors and day-day problems may arise and increase in frequency.
- Your business or your interest in it could pass to someone who does not have the knowledge or skills to run it. This may mean an inappropriate person now has the ability to make decisions themselves and impose these decisions on others involved in the business or could prevent or stifle other (more qualified persons) from making decisions or taking action as they believe necessary.
- Conflict may occur between the people who inherit or between them and your existing co-owners of the business, impacting the ability of the business to function.
- Poor management (or indeed no management whilst a business is on hold pending receipt of a Grant of Representation following death) and conflict will impact on the value of the business and could result in a reduction in value or forced sale of the business.
- Your business may have to be wound-up, which may not be in-line with your wishes.
- You may pay more inheritance tax, now or in the future, as appropriate Inheritance Tax planning may not have been undertaken
Who requires a specially drafted ‘business’ Will?
The need to write a Will taking business interests in to consideration may apply to you if:
- You are a sole or joint director of a business.
- You are a sole or joint shareholder of a business - if you own shares in a company with other people, you may or may not have a Shareholders Agreement which covers amongst other things what happens to your company shares on death or incapacity. This agreement should work together with the terms of the Will.
- You are a partner of the business along with one or more others:
- You are a sole trader. You may work alone or employ others.
- You have a Partnership Agreement or have no written agreement in which case you are governed by the Partnership Act 1890. A Partnership Agreement covers what happens on death or incapacity of a partner and ensures the partnership is not wound up on the death of a partner (which is the default position under the Partnership Act).
How will getting advice and making a Will help me?
Getting specialist advice and a having a Will that deals appropriately with your business interests, means you are:
- Ensuring your estate is passed to those who you wish to benefit (beneficiaries) in the most tax efficient manner.
- The business or businesses you are involved with being able to continue operating as smoothly and as effectively as possible in your absence, OR providing for the business to be sold or wound-down in the most efficient manner.
- Reducing the risk of disputes arising between the directors, shareholders, partners or individuals that remain involved in the business.
- Protecting your beneficiaries from inheriting commercial responsibilities which they may not wish to take on, be in a position to take on or be an appropriate person for.
- Protecting your executors from having to deal with complex disputes potentially involving your business partners, beneficiaries or the executors themselves.
- Your chosen beneficiaries will benefit from your estate as you intend. This might be family members.
- Your business interests passing to your business associates and the equivalent value of your business interests to your family, which may involve back to back insurance, a common solution for those owning a business interest with others whether a company or a partnership.
- Passing your business to your employees or a particular employee or group of employees, such as senior management, or a particular manager.
What is the end result?
After getting specialist advice and making your Will, your understanding of your business and personal circumstances will mean:
- You understand the impact of death and have peace of mind that those you want to benefit from your hard work, do benefit.
- You understand why external documents such as Partnership Agreements, Shareholders Agreements and back to back insurance policies are important to all those with an interest in a business.
- You understand the impact of inheritance tax on your business and your family.
To seek specialist advice on making a Will that protects your beneficiaries, your Executors and your business/es, contact Sue Carlile at Holmes & Hills Solicitors on 01376 320456.
Posted 09/03/2020 by:
Senior Solicitor in Private Client Team