Protecting Your Business When You’re Gone
Posted on 21st September 2021
We don’t like to think too deeply about what will happen after we die. However, if you have spent years building your business you will want to know that it is in safe hands after you’re gone.
To protect your loved ones, you have probably already written a Will* for your personal estate* so that your property and assets will be handled as you would wish.
Did you know that you can also create a company Will so that your business can continue to run and your family members and friends can benefit?
You will have taken a lot of time and care to manage the risks associated with your business. However, having a clear plan for what will happen to your share when you die is easy to overlook. This is known as shareholder cover or succession planning.
If you die without making any provision for your business, your fellow directors will still have to try to continue running it without you. Your share will go to whoever inherits under the terms of your Will* or according to the rules of intestacy* if you don’t have a Will.
Whoever inherits your share might not have any experience or, frankly, interest in becoming involved in your business. So, how will your fellow directors and shareholders manage?
How to protect your business
As a director or shareholder of a limited company the memorandum and articles of association and shareholder agreements are good places to start. This will give you a clear understanding of how much of the business belongs to you and under what terms.
You will need a realistic value of the whole business so that you know how much it would cost to buy your portion. This doesn’t imply you intend to sell it, but you will understand the value of your business as an asset.
Now your fellow directors and shareholders will know how much they would need to buy your share of the business from your beneficiaries.
It’s possible, and even likely, that the other directors and shareholders won’t have that amount of money readily available. The solution is to take out a life assurance policy to cover the death of each shareholder, based on the value of the business. Your solicitor or accountant can give you some advice to help you manage your tax liability.
How to create a company Will*
You can create a legal agreement that defines how shares can be sold if you die. A life assurance policy will provide funds to allow the other business owners to buy your shares from your beneficiaries. They can then continue to run the company without you. This can be set up in a Trust* to make the process easy to manage.
There could be inheritance tax implications (IHT)* to the arrangements you make, so it’s important to take professional advice, especially if you will leave a surviving spouse or partner.
If you plan to sell your share of the business eventually there are also flexible life insurance options to cover your personal liabilities beyond the sale.
To make sure your business can continue to operate smoothly, your succession plan should be based on the wishes of all the directors and shareholders in your business because there are sure to be overlaps.
While it’s easy to think that this is something to be done in older age it is an important step to take as soon as possible because we never know what tomorrow might bring.
For advice on a life assurance policy for your business succession plan please get in touch.
*Please note: Will writing, estate planning, inheritance tax planning, trusts and intestacy are not regulated by the Financial Conduct Authority.
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