If you’re a business owner, it’s incredibly important to consider what will happen to your business when you die. Would your business actually be able to continue on if you died? This will differ depending on the size of the business and number of employees, as well as the structure of the business. It can also largely depend on whether you have taken the time to prepare an estate plan that covers business succession planning.
As a sole trader, your business may not be able to run without you, however it still may have value if it were to be sold, and as a result it warrants consideration in your estate plan. In circumstances such as these, the speed at which your estate is able to access your business records and list the business for sale may be crucial in ensuring that there is no loss of goodwill, or that your business doesn’t crumble into nothing while you wait for the court to make a grant of probate.
Corporations, Partnerships, Trusts, and Other Structures
If you have another corporate structure, depending on what structure, you may not even be able to gift your business in your will. Many business structures such as companies or trusts are considered separate legal entities and can have their own governing documents that determine what happens in case of a death. A careful analysis of your structure and its associated documents is required to determine whether or not those structures will form part of your estate asset pool.
Where corporations are used, it is important to consider whether there are additional directors who will have the authority to run the company in your absence. Documents such as company power of attorneys can be prepared to delegate authority in times when directors may have passed away or lost capacity.
Partnership agreements and shareholder agreements also need to be carefully considered, as these documents may have provisions within them preventing the transfer of the business shares or assets to third parties. This means that your family may not be able to inherit your shares in your business. Shareholder or partnership agreements may also include specific buy out mechanisms, or other directions regarding control of the business. If you don’t have a shareholder or partnership agreement, you may be in a lot of trouble if one of your business partners dies.
Insurance is another key consideration in the business succession plan. Certain insurers offer buy/sell or key person insurance policies to enable partners to use the proceeds of the insurance policy to buy out the shares of a deceased business partner, avoiding the need to sell the whole of the business where a single partner dies.
We Can Help
At Thornton + King, our specialised estate team has decades of experience dealing with complex business succession planning, and estate planning for high net worth individuals. We regularly review business structures and their associated documents in order to ensure that our clients’ business succession planning objectives are met. We are also able to liaise directly with your accountant or financial planner to ensure that the process is as smooth as possible for you. To learn more, give us a call or submit an enquiry now.