A will is an important part of everybody’s legal planning no matter your circumstances, but for anyone who is in business a well written will is vital to ensure the minimum disruption after your death.
‘Whether you are a sole practitioner, a partner in a partnership, or a director of a limited company, you need to consider how your business will continue if you should die while still working or controlling the company,’ says Laura Edwards an Associate Solicitor in the wills and probate team with Humphries Kirk in Parkstone.
Problems can be particularly acute for sole traders, startups, and small businesses, and this can be especially stressful for family beneficiaries who rely on income from the business.
Consider the risks
Just as you consider risks such as health and safety or employment law, it is worth spending some time thinking about the implications for your business if you should die prematurely.
Different businesses will face different risks and issues. For example, a property letting business might continue with few problems, especially if you have an efficient letting agent. Whereas a creative business, such as a web designer or bespoke tailor, will have orders to be fulfilled, and a manufacturer will also have stock to deal with.
How likely is it that the business could continue without you? Some businesses are synonymous with the founder and may simply need to be wound up efficiently. Other businesses might be an attractive acquisition target, in which case your executors need the skills to maximise the sale value for your beneficiaries.
Tax planning is also important for entrepreneurs as the provisions in your will can make a big difference to the amount of tax that may need to be paid after your death. Careful consideration should be given to whether Business Property Relief is available and what can be done to maximise this.
Check your business agreements
If you are in business with other directors or partners, then you should have an existing shareholder or partnership agreement which sets out what should happen if you die. Typically, this would allow the others to continue with business as usual and will state whether they have an option to buy your shares and how their value would be calculated.
These written agreements will outweigh any provisions in your will, so your will should simply act as a confirmation of those wishes. It is also important to ensure that all directors or partners provide for the business in their individual wills.
If you do not have such an agreement, or it is out of date, then we can introduce you to our commercial colleagues who can help address this. Our commercial colleagues can also review existing documents and provide advice on these.
Where there is no business agreement
If you are a sole trader or work with other members of your family, then there may be no written agreement. If you do not provide clear instructions for the business in your will, it would fall to your executors to ascertain whether they have the power to continue running the business.
If they do not have the powers that they need, a lengthy and costly application to court may prove necessary.
For example, your executors may be unable to:
- continue relations with external providers;
- ensure that employees continue to be paid; or
- serve notices on behalf of the business.
You need to consider who would be an appropriate executor when it comes to the business. While you may be content to let someone manage things while you are on holiday, they may not be the best person to continue to run things after your death.
Choosing capable executors for business purposes can significantly reduce the burden and stress on family members who do not have the requisite business knowledge. You may wish to consider appointing professional executors who are used to dealing with businesses as part of an estate.
It is advisable to include some specific provisions in your will to ensure that your business continues to run smoothly, such as:
- who will run the business day to day;
- what is to happen to your shares in the business;
- what is to happen to any employees; and
- if the business should continue to use the same professionals, such as accountants and solicitors.
Speaking to a legal professional about your will provisions will help to ensure that all these points are covered.
A letter of wishes
Often, it is more appropriate to set out exactly how you wish your executors to act in a separate letter of wishes and this is no different when it comes to your business. For example, if you have given your business executors a general authority to run your business day to day, you might wish to make a letter of wishes to more detailed instructions about:
- any employees who assist with specific areas of the business, whether formally or informally;
- your preferred suppliers and external service providers;
- any usual bonus structure the business may have;
- the frequency and content of the business’s social media engagement; or
- any other aspect of the business that you feel it is important for your executors to consider.
A letter of wishes is not legally binding, and you should ensure that you seek legal advice to ascertain exactly what can be included in this way, and what should be set out within the will.
As well as making a Will, you may like to think about what will happen to your business if you suddenly become mentally incapable.
A Lasting Power of Attorney (LPA) enables you to appoint somebody you trust to look after your financial matters if you cannot do so. You may appoint separate attorneys to deal with your personal matters and your business matters or choose to have the same person for both.
We can work with our colleagues in commercial to look at your business structure and ensure that an LPA will be effective. If you are a shareholder in a Limited Company, it is important to check the articles of association.
How can we help?
If you run your own business, no matter the type or nature of business, it is important to consider the implications your premature death may have on the continuation of that business when making your will.
Our solicitors can guide you through the process and help you to make appropriate and legally valid provisions, helping to reduce any unnecessary tension between your family and your business interests.
For further information, please contact Laura Edwards in the wills and probate team on 01202 714580 or email firstname.lastname@example.org. Humphries Kirk LLP has offices in Parkstone, Poole, Southbourne, Wareham, Swanage, Cranborne Chase, Crewkerne and Dorchester.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.