Alison Hall, a partner in our private capital team, provides guidance on succession planning for businesses.
When a Shareholder or Director of a company or one of the Partners in a trading partnership dies suddenly, unforeseen problems can be caused for the business. As part of any business strategy, it is wise to consider what would happen in the event of a sudden death.
The main issues which need to be considered are as follows:
- Did the deceased leave a Will? If so, who inherits their business interest? Does the Will provide an option for the interest to be purchased?
- If a Will is not left then the rules of intestacy apply. This could result in an unexpected tax liability, business interests passing to minor children, and a delay in the appointment of an Administrator to make decisions in respect of the deceased’s business interest.
- Did the deceased own any business assets personally? If so, who now inherits these business assets and will they allow the business to continue to use them?
- Does any shareholder / partnership agreement exist, and if so, does it provide for what should happen to the deceased’s business interest? Is there an option for the other shareholders / partners to purchase the deceased’s interest and the mechanism for valuing it. Is there a procedure to purchase the interest in instalments, does interest have to paid on any outstanding payments?
- Is there any life cover in place which would allow the surviving shareholders / partners / business to purchase the deceased’s interest? If so, is this owned personally by the other members of the business or by the company? This can have an effect on the valuation of the business.
- Is there relief from Inheritance Tax (Business Property Relief) for the deceased’s interest? This can be affected by the shareholders / partnership Agreement if this includes a binding obligation for the surviving shareholders / partners to purchase the deceased’s interest.
- If the deceased was a key part of the business is any key man insurance in place to fund the recruitment of a replacement?
- Is the goodwill value of the business affected by the death of this person?
- Can the business run without the involvement of the deceased?
All of these matters need to be considered as part of any effective business strategy to ensure that if an unforeseen event occurs the business does not suffer. At Hay & Kilner, we can advise on options to cover all of the above situations and look at the most efficient way for the business to be structured both in terms of the continuation of the business after a death, protecting the value of the business and minimising any Inheritance Tax liabilities.
For further information, please contact Alison Hall on 0191 232 8345 or email: firstname.lastname@example.org