Running a business involves constant planning when wanting to achieve financial stability, but have you done the same for writing your will?
If I told you, whether you die with or without making a will, if your estate is valued at more than £325,000 then there could be inheritance tax to pay. The rate of inheritance tax is quite huge! We’re talking 40% here. But by making a will, you’ll be able to mitigate the amount of inheritance tax to be paid and most importantly, you’ll be in control of who your beneficiaries are and how your money (personal and business) will be distributed.
Your will is the only way your money, property, possessions, and investments can go to the people you care about.
If you’re a business owner, we’ve prepared some questions that you should start considering:
- Will I have to sell my business?
- Can I leave my business to anyone I wish to leave it to?
- Who’ll be responsible for executing my wishes?
The above answers are all dependent on your circumstances and whether your business is operating as a Sole Trader, Partnership or with a shareholding in a Limited Liability Company. If you continue reading you’ll learn more about our recommended next steps.
Wills for Limited Liability Companies
Sole Traders
Sole Traders are usually the key decision-makers, and it can be hard to replace, even after death. Your will can be planned to assist with what you’d like to achieve. This could include giving your trustees special powers for the business to continue.
Partnerships
Your Partnership Agreement should address what will happen on the death of a partner. Without this, the death will dissolve the firm resulting in serious consequences such as capital and income passing to your estate.
In some cases, where the surviving partner(s) may want to continue trading as a new Partnership or on their own but will have to raise the monies to be paid into your estate within a short amount of time after the date of the death.
Your position as a Partner within the business means you cannot entrust your position. You can only consign your financial interests to your loved ones.
Partners are liable for all debts of the partnership, if at the time of death your liabilities exceed your capital, then it could mean that there are no financial interests to leave to your loved ones. The outstanding debt will be payable from your estate. Why? Because the liability is against the individual partners and not the business.
The above could seem daunting, but the combination of a will, a Partnership agreement and a suitable insurance package can give you peace of mind. It will ensure that the beneficiaries and surviving partners can relax and enjoy a planned settlement of your business matters.
Limited Liability Companies
As a Limited Liability Company, it requires its own legal identity. The rights of the shareholders are determined by the Company’s Articles of Association and can be amended, when necessary, by the shareholders.
The articles state what rights the shareholders when it comes to shares. In most cases, there’s a requirement to give shareholders the option to purchase shares in the case of a death of a shareholder.
However, there is also the option to leave shares with certain loved ones, but these are restricted to a spouse or children. The Articles of the Company will take paradigm over conflicting clause within a will.
You could now be wondering when to start. We suggest you start planning today! Before you draft your will, here are three things to consider.
- Set up a transfer of power and assets in order for the business to continue successfully
- Minimise the tax impact by transferring the business during your lifetime
- Agreeing with a loved one to take over the business is not enough. Who actually wants the business?
If wills and amendments to business agreements are areas you need to discuss, please get in touch with the SBCA team today. We’re here to help you in the present, so you don’t have worries about the future.
Call us today on 01772 204102.