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Running a business will involve constant analysis and planning to achieve your aims of financial stability and independence. The same analysis should be adopted when it comes to succession planning and writing your Will.
Consider the following:
- What would happen to my business if I were to die tomorrow?
- Who would take on the ongoing day-to-day decisions?
- Will the business have to be sold?
- Can I leave my business or interest to anyone of my choice and if so to whom?
Whether you are a sole trader, partnership or limited company, effective succession planning and will writing can ensure your business, partners and family don’t end up in a tricky situation.
Why should I plan for business succession?
A Will and successful business planning can help you deal with your assets and business in the most tax effective manner and also ensure that your estate is left to those who you wish to benefit.
For example, if you are a partner in a partnership, or a director and shareholder of a limited company, in the absence of any arrangements made during your lifetime your interest in the business will pass in accordance with your Will if you have made one, or if you die intestate (i.e. without having made a Will) it will pass under the intestacy rules.
Either way, your surviving business partners or shareholders are faced with the prospect of that deceased’s person’s relatives inheriting an interest in the business. Whilst in some cases this may be desirable, in most cases it won’t. Careful business succession planning can avoid this scenario. In addition, business succession planning through your Will can in certain circumstances secure substantial inheritance tax benefits for your estate that would otherwise not be available.
Depending upon the structure of your business depends upon your level of succession planning. It is not the case to think that a simple personal Will can ensure business affairs will carry on unaffected.
Sole Trader:
All assets and liabilities of your company will form part of your estate on death but Would you want all assets to be divided between all those named in your Will? Would anyone be able to carry on the business in your absence?
Partnerships:
Without a Partnership Agreement stating what happens on your death, the firm will be dissolved abd a share of the capital passed to your estate BUT the combination of a Will, a structured Partnership Agreement and appropriate insurance coverage can provide some security on the death of a partner.
Limited Liability Companies:
As a company, this has its own legal identity quite distinct from the shareholders who own it. Succession Planning here involves correct company Articles for Association, Shareholder Agreements and carefully drafted Will.