Business Will

When a shareholder or partner dies there are two vested interests in what happens to the business.

  • Shareholders or partners will typically want to retain control of the business.
  • The beneficiaries (usually the family members of the deceased) are most likely to want to receive the cash value of their share of the business.

If you were the one to die, depending on how your will is written, your spouse and family might become the owners of your shares. However, your spouse might have no interest in the business or, even worse, not get on with the surviving owner managers

Conversely, say your business partner dies and his shares pass to his spouse, who wants you to buy the shares, but you have no structure in place to govern how this will happen.  Even worse, there are no funds available to allow you to pay for the shares on offer. The surviving spouse then decides to sell her shares to the highest bidder – one of your competitors. Can you imagine being in business with your deceased shareholder’s widow’s new partner?

WITHOUT A FORMAL AGREEMENT IN PLACE THERE ARE NO GUARANTEES

…that they will receive any money

…that there is any likelihood of finding another buyer

…they will receive any income, as there is no requirement for them to do so

…the company will be able to pay a dividend

The key requirement is to ensure the provision of the right money in the right hands at the right time.

Eliminating The Problems

There are 3 distinct elements when dealing with these matters:

  • An Agreement as to how to transfer the shares,
  • The funds to buy the shares,
  • Matters arranged so that the funds can be received tax efficiently.

Possible Solutions

An Agreement between the owners of the business (your “business will”)

The owners of the business can set up an Agreement where shares pass efficiently to the surviving shareholders or partners so that they retain control of the business. The agreement also allows the deceased’s heirs to receive a fair value in a tax efficient manner.

There are a number of options as to the type of agreement, for which we can provide advice, tailoring the agreement to your business.

Discussions will need to take place as to how the arrangement will be funded. In many cases the arrangement is funded by a life insurance policy. We can liaise with your financial advisers

Sole traders and sole shareholders will wonder what can be done so that their business can continue in the event of their untimely death. Is your business a ‘lifestyle’ business that provides you with a  living, but without you there is no business? Or, is it a business that has a value and has the ability to continue should you die?  Or could your ‘lifestyle’ business become a value business that could continue without you?

You may to seek professional advice to transform your business to one that could survive without you.

Your Personal Will

There is a lot to think about when drawing up a Will. Depending on the nature and structure of your business, there will be many potential situations to consider if you die unexpectedly. There will also be practical implications.

Inheritance Tax can be a major consideration. Many businesses will qualify for Business  Relief at  100% and can often be passed on to children free of Inheritance Tax.  Your children may have no aptitude for your business.

However, this does not solve the problem of avoiding the risks of:

In the case above of the estate receiving a fair value of cash for the shares Business Relief is lost. This is particularly relevant if the beneficiary is the surviving spouse or co habiting partner. When they die the cash will attract inheritance tax. Also, by the spouse or partner receiving cash for your business there can be additional threats:

  • Assets may finish up in the hands of the survivor’s future spouse or their future spouse’s children
  • Hostile Creditors eg Local Authorities for purposes of Long Term Care (LTC)
  • Giving assets or cash to children can leave them open to hostile creditors

We can arrange for shares to pass to the heirs and the next generation (your children) in a tax efficient manner whilst providing your spouse partner full access during his or her lifetime and overcoming all of the above threats.

The type of wills that are “all to my wife and if she predeceases me all to my children” or intestacy cannot will leave the proceeds of your hard work and good judgement hopelessly exposed to the above threats together with inheritance tax when your surviving spouse/partner passes.

NB Not all businesses qualify, however, and our specialist advice needs to be taken here.

Contact the specialists if to wish to have a conversation of tax efficient business succession

 

 

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