What Happens To A Business If The Owner Dies Without A Will?
Whatever your business is, it is vital that you make a plan for the succession of your business on death. Part of this is making sure you have an up to date, valid will.
Many businesses can attract business relief which, in some cases, can result in 100% relief from inheritance tax. Putting the right succession plan in place and getting the right advice is vital.
What you decide to do with your business, and what you are allowed to do, will usually depend on how you own the business, with different rules for sole traders, partnerships and limited companies.
You may want your family to benefit from the value of your shareholding in the business, but do not think it would be appropriate for them to run the business. If that is the case, a document called a cross-option agreement is likely to be the solution. Here, each shareholder agrees that on death his fellow shareholders have the option to buy his shares and his estate will have the option to sell his shares to the shareholders. That way, your beneficiaries can inherit the value but not the shares.
If the business is to be sold shortly after your death then you should consider the merits of leaving your shareholding to a trust. If your business attracts relief from inheritance tax then this is a tax-efficient method of ensuring your spouse or civil partner’s estate does not pay inheritance tax on the sale proceeds on their death as they remain outside of their estate when held in trust.
If your business is a partnership then you may be surprised to learn that without a partnership agreement in place your death dissolves the partnership. Putting in place a partnership agreement is highly recommended and a cross-option agreement will also assist your partners.
If you are a sole-trader then you might have someone in mind to take over from you. If you do not wish that person to disproportionately benefit from your estate, then it is possible to grant an option in your will for that person to purchase the business on terms that you see fit.
As a sole trader, your business is very vulnerable on death and if you wish it to continue as a going concern then you should also consider the merits of incorporating your business in to a limited company or becoming a partnership.
Who do I leave my business to when I die?
It is not uncommon to be involved in the running of a business and for your spouse/civil partner, or any number of your children, to not be involved at all.
No doubt you will want to ensure the succession of your business provides a fair outcome for the whole family. A well-written will can ensure that family members involved in the business will continue to benefit from their hard work, whilst also ensuring that those not involved do not miss out on the inheritance you want them to have.
With so much to consider, having effective legal advice is crucial. I have worked with a high number of business owners, many of whom were unaware of the business reliefs available or the many ways in which they could protect both their business and their family.
Contact me directly via matthew.rose@GAsolicitors.com or call 01752 203500 for a no-obligation discussion.