Published on: 30th November 2016

I'm a business owner: where will my business assets go?

If you don't check the provisions of your partnership/company documents to make sure they match what you want to happen when you pass away and link correctly with your Will, problems can occur.

You must know which of your assets are owned by you and which are business assets, otherwise this can cause major issues if you are incorrect. Issues of ownership where there is a business, can sometimes be blurred in the mists of time - property, private client and litigation solicitors will all have experience of this.

Here are several examples to think about:

1. You leave a legacy in a partnership to you son and daughter for them to both become equal partners in your business. The partnership agreement is reviewed on your death and its provisions don't allow you to pass on your partnership share in the way you wished; the surviving partner has been given the option to buy out your son and daughter of their interest, so they could only receive money instead of becoming partners themselves.
2. In your Will, you give your family company shares to your husband. On your death it is made aware that there is a clause in the company documents, stating that company shares can only be left to direct descendants of the founder. This means you are unable to give this to your husband.
3. You have left a gift of some buildings to your wife in your Will. On your death it comes to light that you don't have the control to pass the buildings onto someone else via your Will, due to an original agreement made many years ago which omits re-valuation provisions. The provisions give your business partner the right to buy your share from your estate at their original cost, not their current value.
4. In your Will, you leave your company shares to you wife, assuming that your house is a company asset. Everything else is left to your son from a previous marriage. On your death, it is discovered that the house isn't a company asset so it all passes to your son - this wasn't ever your intention.

Things that need to be addressed to avoid issues arising on your death:

• Are your documents in accordance with your Will, in line with your wishes and up to date? Over time, businesses develop and evolve; all business documents should regularly be reviewed in conjunction with your estate plans.
• Could the value of your business make an Inheritance Tax (IHT) charge to your estate? While Agricultural Property Relief (APR) and Business Property Relief (BPR) might be available, there are lots of circumstances where they aren't. Reviewing the assets and structure could bring you opportunities regarding the business' interest within the scope of the IHT reliefs.
• If it is anticipated that the business can continue to run on your death, while your estate is being administered you will need to decide who will run it. Your executors will step into your shoes if you are a sole trader, and they will need to keep it running and then either sell it or transfer it to a beneficiary. People often choose a separate business executor instead of leaving this to the executor of their personal estate.
• After your death, how will the business be funded? When a business owner dies, banks sometimes freeze loan or overdraft facilities. Will there be enough money to keep the business going during the estate administration period so that it keeps the same value for a future transfer/sale?
• Can your business partner afford to buy you out? You could take out life insurance for business owners with a double option agreement which enables the purchase of the business interest by the surviving owner/s. By doing this, the estate beneficiaries are also given the rights to call for the business assets to be bought from them, and can set out the basis of valuation of the assets. This must be structured correctly to preserve any applicable BPR.

Whether an interest in a partnership or a company shareholding, if you make no specific provision in your Will, this will fall into your residuary estate or pass under the intestacy rules if you don't have a Will. It won't automatically pass to the surviving owner. Get in touch with us and we can help you control the distribution of your company assets through your will.

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