If the worst was to happen, what would become of your business? It’s a macabre subject but it’s important to think about if you want your business to continue to thrive once you, your business partner or a prominent shareholder is gone, especially if you are relying on your business to provide for your family if you are no longer here to look after them. A Business Will is one way to ensure the smooth transition of business ownership after the event of a death, allowing business operations to continue as smoothly as possible.
Why write a Business Will?
The mains reasons behind writing a Business Will are to ensure the ongoing management, control and financial stability of your business remain robust and to address the personal requirements of the deceased business owner with a smooth transition of tenure.
A Business Will is important because it can specify management, responsibilities and funding for the future and it avoids uncertainty for family and business members who might be unsure what happens after a family member, co-worker or shareholder is deceased.
The importance for small business owners
A Business Will is important – particularly for small business owners – because your immediate family may depend on your business as their main source of income. Therefore, the success of your estate planning could decide the future for your family, and your Business Will sits within your estate planning. Transitioning the business to the next generation or selling your shares for a fair price are two of the common ways to plan ahead.
Many small businesses function under an owner-dependent model, which means that business operations all require your direct supervision, with any other work being almost entirely clerical. If this is your business model, the likelihood is that, if you were to die, although your business would pass to your heirs, they probably don’t have the skillset to keep it going. Your business would therefore be likely to close, so your heirs don’t want to be landed with a tax bill for inheriting a business that has no real worth beyond your death. In such circumstances, in legalese, your estate planning should look to minimise the transferability of the business to surviving family members.
Having a Business Will can be the difference between your business surviving and thriving beyond your death – and therefore continuing to support your family – or it suffering overnight from amateur interference that could drive it into the ground.
A Business Will ensures that the existing shareholders, who have knowledge of running the business, can keep control of it. Imagine that you are in partnership with one other co-owner. If they die, their spouse or children could inherit their shares; these beneficiaries may have no practical experience of your business or even know how it works, but could now just turn up and demand that they want to run the business, and legally, they have the same voting power as you!
Staying in business
A Business Will can also ensure smooth, continuing business operations. If the person who dies is the company’s financial director, without a Business Will you could find the business bank accounts frozen. This would mean you couldn’t pay suppliers, rates or rent. The amount of time it would take you to get access to the bank accounts could be longer than the period of grace that your suppliers or landlord are willing to extend to you – which would mean the end of your business. Similarly, the death of the sales director could mean your cashflow is scuppered. These things should be considered – and planned for.
Any Limited Company or Partnership should consider a Business Will to ensure the continuation of the business. A limited Company’s Memorandum and Articles of Association will usually state what should happen in the event of the death of a Shareholder, but this may not necessarily be what the shareholders actually want to happen. Therefore, if the shareholders have not considered this before, then they should start to think about it before it happens, because by then it’s too late.
Planning ahead is common practice for all business operations, but many small business owners may not have thought about estate planning after the death of a prominent shareholder. It’s important to consider these potential scenarios, just in case the worst does happen, so an already upsetting time doesn’t become even more stressful for your family, surviving business partners and staff.