It is something every business owner must consider at one time or another – what happens in the event that I die or my business partner dies?
Some knowledge and planning based on the right advice can go a long way to provide confidence that the correct actions have been taken and steps put in place to cover such an eventuality.
Being prepared provides certainty as to what will happen next and it is important to have a plan of action just in case.
Business owners should enter into a business partnership and/or share sale agreement (“agreement”) which will enable the remaining owners to continue to run the business with the minimum of disruption. The agreement should set out the rules for the succession of the business to be run as far as possible in the way that you would wish and provide detail to each business partner or owner what their rights and responsibilities are in a given situation.
Such an agreement would typically cover:
- Buy out provisions for other business partners.
- Delegation of decision making to successors.
- Coordinating respective ownership and management responsibilities
- Development and training needs.
- Retention of key employees.
- Considering the best interests of the business and the owner’s family/dependents
- Any requirements to bring outside expertise.
- Timeframe for transfer of business during lifetime
The agreement should also help mitigate taxes payable upon death and help speed the administrative probate process in dealing with a deceased business owners estate.
Other matters to consider include ensuring that you have a Will and that it is considered, up to date and adequately reflects your wishes.
Having no valid Will gives rise to an intestacy which means your estate will devolve under statute which is unlikely to coincide with what you would like to happen.
The intestacy position is also likely to be tax inefficient with the loss of possible important Business Property Reliefs and/or Agricultural Property Reliefs. The family inheriting the business under an intestacy may also need to sell the business with one year to raise inheritance tax. They may also have no legal obligation to sell that share of the business to other co-owners.
The remaining co-owners could then be faced in dealing with a new uncooperative business partner which could hamper the effective and profitable running of the business.
Reviewing your estate planning to include the ongoing running of a business can also include the use of a trust whereby the chosen trustees can act. This can alleviate the responsibility which may otherwise fall on members of the family and have distinct tax advantages.
It is also prudent planning for the business owner to put in place a Lasting Power of Attorney should mental incapacity or sudden injury or illness mean that it is no longer possible to participate in running the business. Having a delegated attorney to act in this scenario will provide reassurance and avoid the possibility of expensive legal disputes.