Will your business fall into safe hands when you die?
Release date: March 2006

Whether you are running a business with partners, fellow shareholders or have an interest in a larger business it is now time to consider making a Will if you have not done so already. In the event of death assets are frozen and until probate there is no access to bank accounts or payment of insurance. Your family would become involved in unnecessary expense and delay at a time when they are trying to come to terms with their grief. You would have no assurances as to how your affairs will be handled.

The questions you need to ask yourself are – what would happen to your business if you suddenly died without leaving a Will? Would your interest pass to your family and continue to provide an income for them? Would they be able to run the business, or sell their share and invest the cash? Could your co-owners of the business buy your share?

Suppose your co-owner with a minority share in the business, but also with skills vital to the business, suddenly suffers a fatal accident? Have you got the funds to buy his or her share and find a new co-owner or investor? Is there an agreement between you on how to proceed if such a situation arises and if the business has to be sold?

To avoid turmoil there are a number of different ways to address these issues:-

If you are in a formal partnership the solution may be a partnership protection agreement to give the surviving partner the right to buy the shares of the deceased partner. To provide the money, a life cover policy can be taken out on each of the partners. Your family would at least have the peace of mind that your share of the partnership is sold to partners at a price agreed between you and they would be protected financially.

In the case of a limited company the solution may be shareholder protection – an agreement between all shareholders that if any one of them dies the others would have enough money to buy out the deceased shareholder’s shares in the business. To provide the money, a life cover policy would have to be taken out on each of the shareholders.

As an owner or part-owner of a business it is not enough to assume that because you have had a good relationship for some years and have a 50/50 or 75/25 share split in the business, the value of these shares will to the deceased’s family shortly after death. In essence, it is prudent to make sure there is a clear, written agreement with your business partners or co-owners how the business is to be continued (or disposed of) in the event of a partner’s death and how his or her family is to be treated.

For further information contact Iain Robson
iain.robson@close-thornton.co.uk

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