Financial & Legal News

The importance of Wills for business owners

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No matter what your interest in a business – owner, director, partner or sole trader – it makes sense to protect the future of that business.

Whether you’re planning for retirement, passing on the mantle or contemplating your mortality if you don’t have a plan in place and a valid up-to-date Will everything you have worked hard for could be at risk.

Wills for small business owners

A Business Will is especially important for small business owners as their immediate family may be reliant on the business as their main source of income.  By discussing and implementing appropriate planning you can be assured that your business assets, which may be both the achievement of which you are most proud as well as your most valuable legacy to your loves ones, will continue to benefit them.

Owning a business outright, having a business interest, or shares, has a real impact on how you should write your Will and plan your estate. Sarah Finnigan is a Tax, Trust & Estate solicitor specialising in Business Wills and has worked with a wide variety of business owners.  She likes to get to know them, their business and their personal needs before offering totally bespoke advice.

“Most of my business clients don’t hesitate taking out insurance to safeguard against unforeseen problems, but then don’t consider when they die or become incapable of running things how this would affect their business,” says Sarah.

What happens if a majority shareholder dies?

“If a majority shareholder dies without an appropriate Will their shares may end up in the name of a spouse who has never been involved in the day to day running of any company, let alone the family nest egg.  Worse still, shares could end up locked in an inflexible trust for minor children.”

Some business owners need a refresher on the consequences of a death to their business, at all levels, including if a key member of staff sadly passes.

The implications for a sole Director business

“If a sole Director dies there are implication for the business bank account  - it will be frozen – meaning cashflow is affected and contracts are adversely impacted as credit dries up.  Business owners need to understand these exposures to the smooth running of their business.,” adds Sarah.

Business Wills for Sole Traders

A sole trader may understand that their business would end on their death but, as Sarah comments:

“How useful to have received a prompt from a trusted professional advisor to leave guidance and notes for loves ones who will ultimately be tasked with selling on stock, fixtures, fitting, and any buildings the sole trader owned and used.”

Depending on the structure, some businesses can be exposed during the administration of an estate because there are limitations on what can be achieved until probate is granted.  If as a business owner you have failed to forward-plan around key people not being around, including yourself, you are storing up future problems for your surviving family members in a time of great emotional upheaval.

“The good news is your death doesn’t have to mean the demise of your business – and making a Will is actually easier than most people realise,” says Sarah.

When making your Business Will your solicitor will make sure you consider who will inherit your shares or business interest and if there might be more efficient ways to pass on the value if they don’t want to continue to run the business. Without a Will the administrators will distribute your net estate according to the intestacy rules which favour your nearest blood relatives. What if your cohabitee helps you run your business and your children have no interest.  In the absence of a Will your cohabitee would have no say and your children would be in charge.  This could damage their relationship at a time when they need to pull together or even result in mismanagement, disagreement about the future direction and ultimately a devaluation of your business legacy.

With experience in drafting Business Wills Sarah advises on the options for passing on your Company shares or your interest in a partnership which depends on, respectively, the Company Articles of Association or the business’ partnership agreement (if there is one).  There may be a valid shareholders’ agreement that has an impact on how the Shares pass (there may for example be restrictions on who can be offered shares after a death) and this document needs to be read and understood in the round, in light of the Company’s Memorandum and Articles of Association, so that the practical effect of the documents is clearly understood by the business owners.  To avoid any post death conflict the professional writing your Will needs to understand all of the company (or partnership) documentation as the two must not be in conflict.  A Specialist Business Will solicitor will be aware of this and advise accordingly.

“With some clients I have been able to change the articles of association in order for them to pass shares on to chosen family or colleagues, or into a tax efficient trust managed by professionals,” says Sarah.

How to protect your business and your family

Having an up to date Will and a Lasting Power of Attorney is a way you can protect your business and your family.

As Sarah says it’s also important to consider not just death, but also your health when you have a business.

“Your health comes into consideration and capacity is something that unfortunately can affect anybody at any time.  As a business owner, it is important to make sure the operation of your business is not adversely affected if you’re taken ill or injured and of course the easiest way to achieve this is to make a Commercial Lasting Power of Attorney (LPA),” she says.

Having this in place will ensure certain business operations can continue until you get back on your feet.  Your appointed attorney will be able to vote at shareholder meetings.  You can also review if you have future-proofed the payment of wages, the signing of cheques and the entering into of contracts against loss of capacity.  Without planning for incapacity, the effect on your business could be disastrous, as there may be no one legally entitled to manage the business.  Your options may then be limited to an application to the Court of Protection to get authority to manage the business, but such applications are time consuming and expensive.

“Making an LPA is just another way to protect your business and, like any form of insurance, is invaluable,” adds Sarah.  “What better time of year to make the important decisions about your family’s future financial security.”

For advice on Wills for business owners contact Sarah Finnigan on 0161 785 3500 or email enquiries@pearsonlegal.co.uk

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

Written by Sarah Finnigan

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