You’ve worked hard to build up a business but what happens if something unforeseen happens to you?
What if you are temporarily or permanently incapacitated – Who will run, and not ruin, your business?
Have you made plans for passing on your business?
Taking the fear out of the unforeseen can be done with a little bit of planning and forethought. Every business owner should consider the following questions in respect of their business;
- What would happen to the business if I were to die tomorrow?
- How will my shares/interest be dealt with?
- Who will run the business in my absence?
- If my family inherits my business, how will decisions be made?
- What happens if I lose capacity while I am running the business?
Statistics show that while about 75% of family business owners intend to make provision for the future as few as 25% actually put in place the means to do so and the consequences of not making adequate provision can be pretty disastrous.
What happens when you’re gone?
You may wish to leave your business interest(s) to be disposed of under your Will or you may want your interest to be sold to the surviving owners so that the proceeds of sale can pass to your chosen beneficiaries.
The first thing to consider is what is stated in the governing document of the business; this could be a Partnership Deed, a Shareholders Agreement or the Articles of the Company. Do the provisions of the document allow for your wishes to be carried out? If not, then consider amending these otherwise your wishes may not be carried out.
Provided that the governing document of the business allows it, there are a number of options available to a business owner in terms of succession. These are as follows:-
- Gifting of the interest to specific people e.g. children under your Will.
- Gifting of the interest to a family trust created under your Will – protecting it from family fallouts, divorce, bankruptcy etc.
- Pre-emption rights – interest offered for sale to surviving owners first.
- Cross-option agreements – an agreement entered into by all owners which oblige the surviving owners to buy the deceased’s interest so that the proceeds of sale will form a part of the owner’s estate rather than the interest itself. This is often tied in with life policies written in trust which would provide the financial means to allow the surviving owners to buy the interest.
There are also important tax considerations, particularly with regard to Inheritance Tax, that should be looked at when determining how to deal with your interest on death.
Losing mental capacity has extra repercussions for business owners. It is possible by way of a business Lasting Power of Attorney, to appoint a person/persons to act on your behalf in respect of your business should you be incapable of doing so. Having such a document in place would allow the appointed Attorney(s) to continue to act immediately if you should lose capacity thereby ensuring that the business continues.
For further advice please contact Neelam Maher.