By Marc Ovits
Everyone knows how important it is to make a Will and have a Lasting Power of Attorney in place. However, it is just as essential to put these structures in place for your business too. Have you ever thought about what would happen if you are too ill to run your business or what would happen to your business when you are no longer here? Below, we will uncover the different ways in which IBB Solicitors can help protect you and your business.
There are four different types of business owners – sole trader, LLP member, director and partner. It is important for business owners to look at their business structures and ensure that the appropriate documents and agreements are in place.
For sole traders, it is advisable to consider the appointment of a special executor in your Will to run your business after your death. An executor has general authority to sell your business but does not have specific authority to run the business until it is sold. This could result in a loss of value of the business and could mean that less will be available to the beneficiaries.
A further consideration for your Will is whether Business Property Relief (BPR) is available. BPR has been an established part of inheritance tax legislation for over 40 years. The qualifying criteria are relatively straightforward. Once BPR-qualifying assets have been owned for at least two years, the taxable value of these assets can be reduced by up to 100% with BPR. However, not every interest in a business will qualify for BPR. Broadly speaking, businesses which carry on a trade rather than investment activities could qualify for BPR and include shares in qualifying companies that are not listed on the stock exchange, shares in qualifying companies on the Alternative Investment Market (AIM) and an interest in a qualifying business, such as a partnership. BPR is available at either 100% or 50% depending on the type of business and how the assets of the business are owned. It can be a valuable estate planning tool and your Will should be appropriately drafted to ensure that the relief can be fully claimed.
As there is no Inheritance Tax between spouses, gifting business assets that do qualify for relief to a surviving spouse may not be the best option for family businesses. One option would be for any business assets, which attract either 100% or 50% relief, to by-pass the spouse and pass instead into a trust from which the surviving spouse can benefit. This would enable BPR to be claimed on the first death, which might otherwise not be available to claim on the second death if the asset were owned by the spouse.
Lasting Powers of Attorney are just as necessary as a Will. You can appoint an attorney to deal with your personal affairs and you can appoint different attorneys to deal with your business affairs. This would ensure that if you become incapable of managing your business affairs through an accident or ill health, your attorney/s can step in and continue running your business. Without an attorney, the business may fold if no-one has the authority to run the business in your stead.
Succession planning is not just about Wills and Lasting Powers of Attorney, although it is a good starting point. It also includes making sure your business has the right documentation and structure in place. These are some of the issues which might need to be considered:
If there is more than one shareholder, is there a Shareholder Agreement in place? If not, who will be entitled to purchase the shares on your death?
Do you have Key Man Insurance? This may be needed to ensure there are sufficient funds available to the other partner for them to be able to purchase the shares on death.
Is there a Share Purchase Agreement in place?
If the business is a partnership, is there a Partnership Agreement in place? If there is no Partnership Agreement, the partnership will be dissolved on the death of any of the partners.
Regardless of what structures you need in place, business or personal, you will need expert advisers around you.