What is a ‘Business Will?’
A ‘Business Will’ is a generic term used to describe any document which contains directions and provisions for dealing with your business after your death, whether you are a sole trader, a Partner or a Shareholder in a limited company. This might be :
- A Will which has specific provisions in it dealing with your business or your company shares as well as your personal estate;
- A Shareholders or Partnership Agreement which contains provisions regulating what happens to your Shares or Partnership interest on your death; or
- Bespoke Articles of Association for a limited company.
Why do I need to think about my business separately?
As a business owner is it vital that you consider what should happen to those interests on your death –
- Will the business have to stop trading or be sold? What happens to the sale proceeds or any remaining assets?
- Do you want to pass the business down to a family member who works with you? If that’s a child, how do you make provision for other children who perhaps do not work in the business?
- If the business is to be continued by non-family members, how do you make sure your family benefits from the value you have built up over your years of hard work?
- Without careful thought, your business interests could end up passing to
- Someone with no interest in running it
- Someone without the skills or experience to run it properly
- Someone who ends up in conflict with other shareholders or partners about how the business should be run
We can work with you to decide what is the most appropriate way to structure provision, depending on your answers to these.
For example, a Will can appoint separate Business Executors to deal with that part of the estate only. It can make provision for your business interests to be placed into a trust structure, which can be both Inheritance Tax efficient, and allows you to separate the on-going responsibility of running the business from those who will actually benefit from the financial value.
A Shareholders Agreement may be appropriate if there are a number of Shareholders in a business and you want to make sure there is control over what happens to those shares if one of you dies. The Agreement will bind all Shareholders signing up to it. This means that one document will give all Shareholders certainty as to what happens on the death of one of them, without having to rely on everybody having the same provisions in their separate Wills.
Options to purchase or sell shares are common provisions, and we can provide further advice as to how this sale would be funded. These arrangements ensure that funds can be released to the family of the deceased Shareholder, while the remaining Shareholders continue to control and run the business without the potential difficulty of an outsider suddenly inheriting shares and having a say in its management.
How can Else Solicitors help?
We deal with many owner-managed family businesses and it is vital that provisions are in place for it to pass on as you intend to, and to prevent disputes and arguments at what will already be a difficult time for your loved ones.
For example, consider this scenario
Sarah and John have been living together for the last 5 years but are not married. Sarah started a company 10 years ago with Martin and she owns 75% of the shares, with Martin owning the other 25%. There is no Shareholders’ Agreement. Sarah’s Will leaves everything to John outright. What happens to Sarah’s shares on her death?
The answer is that they pass to John under the terms of her Will.
But that is not the end of the story – is this really what Sarah intended? Did she really want John to have the shares themselves, or just their financial value?
In this scenario, John receives Sarah’s 75% share ownership which now gives him control of the company. What if he has never had any day to day involvement in this business? Does John have any experience of running a business in general, or have the specialist or technical knowledge required for this business? How will Martin feel about this? Does this matter? Martin could offer to buy John out but John is under no obligation to agree, and even if John did agree, how would Martin fund the purchase of John’s shares?
And without Sarah’s continuing input to the business, who will be able to fulfil the functions she provided before her death? Without a suitable replacement, will the business lose value or customers, and will this affect the value of John’s financial gift causing it to reduce in value from the date of Sarah’s death.
These are all vital questions to consider. At Else Solicitors we can help you work through the options available and discover what will be the most practical and effective outcome for your personal situation. We know that every business and every family is unique, and that is why our Wills & Probate and Corporate Commercial teams can work with you to provide a bespoke solution tailored to your circumstances.
To discuss how we can help you make a Will that meets your particular requirements, please contact Kathryn Caple via email email@example.com.