If you’ve spent decades building up a successful family business with a name for itself, you’ll want to make sure that your legacy lives on after you’ve died. While many business owners choose to transfer power to a third-party on their retirement it’s worth keeping in mind that not everyone is able to do this. Accidents, illness, and mental incapacitation can mean that a business is left leaderless and ownerless prematurely. Many people now also choose to keep working into old age, too – business owners over 65 are increasingly common.
It’s therefore vital to make sure that written instructions are in place in your will as soon as possible if you wish to pass on your business to a friend, colleague, relative, or trust when you’ve passed away. It is also advisable for business owners to consider setting up Lasting Powers of Attorney documents to cover their business assets during their lifetime in the event of accidents, illness, and mental incapacitation to enable their businesses to keep going.
Thankfully, UK law allows for the easy, flexible transfer of business power in wills. How you’ll arrange this varies, depending on the type and scale of enterprise you currently run. There are no restrictions on who you can pass on your business to, other than that they have to be over 18 with no barring convictions on the day of transfer (e.g. bankruptcy notices, court orders banning administration of certain types of business).
You’ll also need to take into account the impact of special taxes (such as Capital Gains and Inheritance) independently – a business still needs to be solvent (i.e. firmly in the black) to be passed on successfully. Here’s how inheritance works for different types of business:
A sole trader is someone who’s the sole, direct beneficiary of their business. Labour and payouts are made by and to one person only. If you’re a sole trader, you can name a single beneficiary who can inherit the rights to your trading name, business assets, client base, and ownership of your sole tradership. Although it’s a personal enterprise, your business doesn’t have to finish after you’ve gone. Make sure the person you want to take over is clearly named in your will. They’ll need to be registered to pay tax and national insurance as a sole trader, too.
Family partnership inheritance is more complicated. Any business with more than two stakeholders, that isn’t incorporated as a limited company, is classed as a partnership. Everyone named as a partner has joint liability for the company, tax, and assets. If one partner dies or retires without the right paperwork in place, the partnership will need to be re-registered. Your Will needs to cover what each will inherit in detail.
As well as specifying who you want to take over your role(s) and share(s) in the partnership in your Will, you’ll also need to have a Partnership Agreement (PA) in place to formalise arrangements. The PA is a legal document that details what will happen in the event of each partner becoming incapacitated (for ANY reason, not just death or injury). Your solicitor or Will writer can guide you, your family, and your business partners through how to put this agreement in place.
If your business is limited (share issuing), or you own a traded stake in a company you don’t directly control, you’ll also need to detail where and who you want your held shares to go upon passing away.
A special Shareholder Agreement should also cover share transfer – but you should make clear in your Will what you want to happen as well. Be mindful that you could be unintentionally signing over a majority stake or controlling vote in the company, too.
You may want to leave your shareholding to someone who has no knowledge of the business (such as your spouse), in which case the remaining shareholders may have problems buying them out or paying dividends to someone who is not bringing in any business. You should consider as a company setting up business shareholder protection insurance for each shareholder and having an agreement as to how this insurance is used.
Do you require leading Will, probate, and estate legal services to ensure you or your relatives receive a fair inheritance? Contact Cornerstone Wills today. We’re experts in every aspect of grants, beneficiaries, and inheritance law. Call today to learn more about what we could do to help give you peace of mind.
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