We care passionately about every customer we help
Partner and Head of Family Law, Rugby
If you want an easy to keep New Year resolution, make one that you know makes sense, have probably been putting off for years and that will benefit your business.
A significant number of people never make a Will even though we have all heard the saying “in this world nothing is certain but death and taxes”. Whether you die with or without making a Will if your estate is worth more than £325,000 then there may be Inheritance Tax to pay. The rate of inheritance tax is a whopping 40%. By making a Will you may be able to mitigate the amount of Inheritance Tax to be paid and you will be in control of who your beneficiaries are and how your money and property (both personal and business) will be dealt with.
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 writing your Will.
If you own a business, the questions that should readily come to your mind are:
The answers to the above questions will depend on your individual circumstances but are also dependent on whether your business is operated as a Sole Trader, in a Partnership or with a shareholding in a Limited Liability Company. The following is a brief guide to the issues you should be thinking about:
It is common for the Sole Trader to be the key person in a business having the particular skills and experience, which may not be easily replaced at the date of death.
Creative thinking can often generate the ways and means of maximising the returns from your business and your Will can be drafted to accommodate what you would want to achieve at you death which may include giving your Trustees special powers which may allow for the business to be continued.
Without a Partnership Agreement specifying what should happen on the death of a partner, death will dissolve the firm resulting in the firm being wound up with the applicable portion of capital and income passing to your estate.
There may be situations where the surviving partner(s) may wish to continue trading either on their own or as a new Partnership but will have to raise the necessary monies to be paid into your Estate within a reasonably short period of time after the date of death.
You have no rights to bequeath your position as a partner in the firm the only right that you will have is that you can bequeath to your loved ones your financial interest in the partnership.
As partners are jointly and severally liable for debts of the partnership, if death occurs at a time when your liabilities exceed your capital then it may well be that there are no financial interests to leave to your loved ones. The outstanding debt would therefore be payable from your estate. This is because the liability is against the individual partners and not against the firm.
The combination of a Will, a structured Partnership agreement and appropriate insurance coverage can provide for the payment of financial interest on the death of a partner. This will ensure that your Beneficiaries and the surviving partners will enjoy an orderly and planned settlement of your business affairs. Equally, if you are the surviving partner, then you will enjoy the protection of your business interests in the same way.
A Limited Liability Company has its own legal identity quite distinct from the shareholders who own it. The rights of the shareholders are therefore determined by the Company’s Articles of Association which can be amended as and when required by the shareholders. The Articles will determine what rights the shareholders have in the disposal of the shares and quite often there is a requirement to give the other shareholders an option to purchase those shares upon the death of the shareholder.
Alternatively there may be an option to leave those shares to certain family members however these are usually restricted to a spouse and children. As a shareholder of a Limited Company the Articles of the Company will take precedent over any conflicting clause contained in a Will however, as a shareholder it would still be sensible to have made a Will, which should be made in conjunction with the Articles of Association.
Below are a few things that business people should address when they draft or update their Wills.
When to start? How about today??
Advance planning can be especially vital for owners of small businesses with only a few employees. If you are a sole owner of a business that has a small internal structure; you are directing several employees and none of them have significant management responsibility, then the need for dealing with issues such as having a Will and putting the succession plan on paper is all the more important.
On the other hand, if you have a larger business with an operations manager and a hierarchy of employees with increasing levels of responsibility for the business then you may already have a structure in place for the business to operate without you even on a temporary basis. Even if this is the case, however, your Will should perhaps reiterate this and should also be put in place to ensure that your personal property and money is dealt with.
If Wills, Trusts and amendments to Partnership Agreements, and Articles of Association are issues that you need to talk about and there is no time like the present.
If this strikes a chord with you please contact Sarah Horton (Wills Trusts and Probate), Emma Stewart (Wills Trusts and Probate) or Brian Auld (Commercial). Alternatively, please do not hesitate to get in touch with us or contact any of our offices : Banbury, Bicester, Rugby and London.
Please treat the contents of our blogs as general guidance only. Please do not take any action based on their contents unless you have sought specific legal advice. Brethertons cannot accept responsibility for any errors or inaccuracies, loss or damage in circumstances where there is no formal retainer between us and we have not given you personal and specific advice relating to a matter for which you have given us full background details. You must also bear in mind that the contents of our blogs are based on English Law, and because they contain archival material, that material is likely to go out of date. Therefore, it is important to consider the date that the blog was posted. Please also remember that the law may differ in different Jurisdictions.