If I Own a Business What Happens When I Die?
Much will depend on whether the business owner is a shareholder in a private company, a partner in a business or a sole trader.
If the deceased owned shares in a private company running a business through the company, the company and the business will continue despite the death. It is not unusual for companies Articles of Association for the surviving shareholders to have the first rights to acquire the deceased’s shares – there may even be a provision preventing the sale of the shares. It is wise for shareholders to have a specific shareholders agreement that controls what occurs on death. One thing that all shareholders should ensure is that any gift in the Will is consistent with the Articles of Association or a separate shareholders agreement. Otherwise, the surviving shareholders could find themselves at risk of having foisted upon them new or unknown or undesirable shareholders.
If the deceased is a partner his death (if there is no partnership agreement) will bring the partnership to an end which may have unplanned consequences for the surviving partners; if there is a partnership agreement provisions should be included as to what occurs in the event of death. It does not follow by leaving a share in a partnership in the Will to a beneficiary that he or she will become a partner in the business!
Where the deceased is a sole trader inevitably it will be necessary immediately after the death to make arrangements to protect the business particularly if it is intended to be sold and the goodwill needs to be protected. Therefore, where there is a business to be run there should be specific provisions in the Will authorising the Executors to run the business post death. It certainly would create difficulties for any personal representatives not to have those specific provisions. It would be even more inconvenient if there was no Will because the personal representatives would not have any authority upon the death and would have to wait for Letters of Administration which will not be available immediately. Such difficulties could result in jeopardizing an otherwise successful business.
It should not be overlooked that where the business is trading there are valuable exemptions for inheritance Tax purposes that can be maximized through a well drawn Will.
The message therefore to all owners of businesses to protect their business asset and maximize on tax, whether as shareholders, partners or sole traders is not only to have a Will in place but also to ensure in the case of a private limited company the articles of association reflect the shareholders wishes or a shareholders agreement is in place and in the case of a partnership a formal partnership agreement has been signed.
April 2009
This article gives a general overview only and the legal position at the time of writing this article. It cannot be relied upon in any particular case. Specific legal advice must always be considered to include consideration as to whether the legal position contained in this article has changed since going to print. For further information and advice, please contact Deirdre Moss, Gail Leece, Gareth Horner or Trish Watkins on 01793 527141 or alternatively by email on Deirdre.Moss@lemon-co.co.uk, Gail.Leece@lemon-co.co.uk, Gareth.Horner@lemon-co.co.uk or Trish.Watkins@lemon-co.co.uk
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