If you’ve never given any thought to what happens if you or your business partner were to die suddenly, you’ll be glad you decided to read this article.
So the good news first…if you and your business partners have a Will in place, the Executors appointed to act for the estate of the deceased would deal with the wishes as per the Will, which would include instructions relating to the business and what to do with the shares held. It makes sense, and good business practise to discuss important issues where appropriate, for example who the shares should pass to. That way in the event of what may already be an extremely difficult time, you can at least rest assured that business will carry on as usual.
The ouch moment comes if there is no Will. In that case the estate, which includes any shares that were held by the deceased, will be dealt with under the rules of intestacy (ie the laws that apply if you die without a valid Will – see my article Don’t have a Will? Not to worry…or should you?)
This means that the deceased’s business shares and responsibilities would be put on hold until administration of the estate and probate has been completed, which could take many months or years depending on the size and complexity of the estate.
Surviving business partners therefore may be unable to make decisions on behalf of the deceased during this time, and the deceased’s assets may be frozen. In the absence of sound inheritance tax planning the estate could even be subject to a large and very unwelcome tax bill, which would have to be paid before any of the assets could be distributed.
Let’s take a look at what happens to the business itself. For sole trader businesses, staff and suppliers could go unpaid for months whilst the estate is being administered, causing catastrophic damage to the business and the financial stability of those working in it. For a business or partnership with shares, the deceased’s shares could end up in the hands of someone that is not even involved in the business, and to make matters worse, if the deceased was a majority shareholder, that person might end up being in a position to make major decisions. It’s not unlikely that the new shareholder may be someone that you do not know, or worse someone who could do your business some serious damage.
Don’t leave the future of your business to chance. Make sure you get appropriate advice and consider the impact on your business if you or your business partner dies unexpectedly.
This information provided in this article is not intended to constitute legal advice and each relationship breakdown requires careful consideration in our view by a fully qualified Solicitor before decisions are made and before you embark on a certain course of action.
Nino Cuffaro – Wills, Trust and Probate
T: 020 7183 1485