New figures suggest that more than half of small and medium sized business owners are failing to protect the future of their businesses in a Will. Research by insurance company Legal & General has revealed that 51% of Britain’s SME owners have left no instructions in their Will for how shares in the business should be distributed. Two lawyers from Coodes Solicitors: Kirsty Davey from the Corporate and Commercial team and Sarah Cornish from the Wills, Trusts and Probate team, discuss the issues.
Does your Will reflect your wishes for the business?
Kirsty Davey says: “Over the last few months I have worked with a number of clients who have experienced problems after a business owner has sadly passed away. This is often because of a lack of succession planning in the business’ structuring, coupled with a Will that is silent on the business interests of the deceased. Unfortunately many of these have left the people involved in the business – often family members – in a very difficult situation.
“When clients come to me for advice on structuring their business, a major consideration will always be to ascertain if they have a Will and then check that it complements the structure of their business. In my experience, people assume their partners or fellow director shareholders will be able to continue to run the business whilst enabling a payment to a family member. However, this is not always clear cut, even for a small business. Not having proper arrangements in place can leave your business interests tied up in probate, which could force the business to close.”
Get advice to make sure your Will complements your company structure
“When we are making a Will for a business owner we will always check the company documentation,” says Sarah Cornish. “This should outline what will happen to shares in the business on death; for example, there may be provision for the surviving shareholders to purchase the deceased shareholders’ shares. It may be that the shareholders are able to fund a purchase from the estate – is there insurance in place. We would work closely with Coodes’ Corporate and Commercial team to ensure the Will and company documentation complement one another, so that the business owner’s wishes can be realised.
“A well drafted Will for a business owner will also widen the powers of trustees so that they are able to deal with a business interest. For example, they could be given the power to delegate authority and allow loans to the company to remain temporarily outstanding.”
Does your Will mention the right people to take forward the business?
“It is essential that the people who are referenced in relation to the business in your Will are willing and able to take on responsibility for the business,” explains Kirsty Davey. “Consideration should always be given to whether they would like to become involved in the business, if they are not already, and the impact that this could have on existing business partners.”
What if I am a sole trader?
“This is relevant whether your business is a limited company, a partnership or if you are a sole trader,” stresses Sarah Cornish. “You could also consider a Business Lasting Power of Attorney, which would give someone else the authority to step in and run your business should you become unable to do so. You can read more about Business LPAs here.”
Kirsty Davey adds: “The key thing is not to assume it will all be OK. I have seen too many instances when business partners or family members have been left in dire straits after a business owner has died or lost capacity. Irrespective of the size of your business, get advice and put a plan in place.”
For advice on any of these issues, please contact Sarah Cornish or Kirsty Davey on 0800 328 3282