When you start up a business, it’s important to have a Will and a succession plan in place. This is because if the business owner dies, it can cause a big financial impact on the business, no matter what size of business. Debts, sales, commercial mortgages, employees and customers all still carry on. Without the business owner, this may not always be possible.
When a business owner passes away, it is up to either the family or the remaining shareholders to sort out the problem. Without guidance and funds being made available to them, it can leave them in a very difficult situation.
With a sole proprietorship, the business owner and the business are one in the same. Essentially, if you die, the business dies with you. The business would fall into the estate and in order to pay off any debts, the business assets would be sold.
Anything that is left in the estate is then given to the family via a Will if one is in place.
If business debts are substantial, and business assets cannot cover the amount, then your family may be liable to pay off what’s left. Not only that, but there may be unfinished contracts, suppliers to pay or customers to compensate. This would all come out of your estate too as you’re not a limited company.
When a partner passes away, it dissolves the partnership. This doesn’t necessarily mean that the business has to end. When individuals enter into a partnership, there are usually written agreements in place so that the business can survive in some cases. Often, the business share would fall into the estate of the deceased individual and the family would need to sell the business back to the remaining partner.
If the partner does not have the funds to do so, the share is at risk of being sold to someone else. Perhaps an unwanted partner or a competitor. The other alternative is that the share cannot be sold, and the family then has a share in the business they may not want.
When there are multiple shareholders in a business, the share will still fall into the estate. The stock is then distributed and given to the family. If the spouse or beneficiary of the share is involved in the business, then great. However, if the person who inherited the share has no involvement or interest in the business, it can cause problems.
If the remaining business owners don’t have the cash to buy back the share, the company can be at risk of losing a share to a competitor or unwanted buyer. In particular, if the deceased shareholder is a majority shareholder, some of the other shareholders can lose control of the business.
When you run a business, it’s important to think about how many people depend on that business to survive, including your own family. For a small business owner, it is likely that your family’s wealth is tied up in the business. The employees that you hire as well will depend on the business for their income and families.
For shareholders and partners, they also rely on the business and may have put substantial funds into the business to allow it to run successfully.
Therefore, having a protection plan in place can help combat serious financial risks that these people will face. In some cases, it may mean passing the business on to the next generation, but not always if the death of a small business owner comes sooner than anticipated. Small business owners are, particularly at risk.
Contact us today, to discuss options available to you to set up a Business Will.