Planning for the future of your business
Posted on 11th October 2018
Whether you’re just starting your business or thinking about retirement, it’s well worth spending some time to plan what you would like to happen when you die.
What type of business do you have?
If you are a sole trader or you control all of the shares in your company, you don’t need to consult anyone else.
However, as a partner or a shareholder in a limited company, you will need to take your partnership or shareholders' agreement into account. If you want to make changes you will need to agree the new terms with the other people involved.ick on this text to edit it.
Whatever type of business you have, there are some important things to consider:
Children – Suppose, for example, that you and your brother have successfully grown your business together and you each hold half of the shares. You have two children and your brother has one. When you die, your children would receive half of your share each, amounting to a quarter share of the business. When your brother dies his only child would control the remaining half share. This could make managing the business very difficult in the future.
It’s important to give some thought to how decisions will be made and, ideally, make sure your arrangements will avoid the possibility of stalemates.
Of course, it’s also possible that none of the children will be interested in running the business. If that’s the case, you will need to decide what should happen when you and your brother die.
Other relations – You might want to leave a share of your business to your husband, wife or civil partner. Other beneficiaries could include a former partner, brothers, sisters, parents, or other relatives.
If you want to see your business continuing after you die, then the most significant question will be ‘who will run the business?’
If your partner and children have not been involved so far, then you risk the business failing if they suddenly find themselves responsible for continuing your role.
Other assets – if you intend to leave your business to one person who has been involved in running it to date this could cause a lot of distress to others. However, if you have assets outside of your business to leave to them, it could help them to feel they have been treated fairly.
Gifts – you might want to give some of your shares to your beneficiaries before you die. You will need a well-written shareholders agreement to avoid any future issues.
You can give your beneficiaries more than half of the shares in your business. Although you can’t specify that you are not handing over control, the remaining shares will then be worth less when inheritance tax is calculated, because they are not the controlling interest.
Your will…
As a business owner, you have a number of options to help minimise inheritance tax in your will.
Land, buildings, plant or machinery that are mainly used for the business could qualify for 100% Business Property Relief (BPR) and 50% relief might be available for quoted shares. To qualify you or your life partner must have held the interest for two years before your death.
Your children or grandchildren are not exempt from inheritance tax in this way, but you could leave them shares in your business.
Alternatively, you could make a specific gift of your business interests into a discretionary trust. The trustees then have flexibility to make decisions about when to sell shares or give them to your beneficiaries.
You can also include a comprehensive ‘letter of intent’ with your will. It isn’t legally binding, but it will make your wishes clear.
You could include the appointment of directors, access to business information and
control of bank accounts for example. You could name who you want to take over your role as Managing Director or Chairman of the Board and even specify the length of time they should serve.
Making your wishes for your business and your loved ones clear can give everyone peace of mind. If you would like to plan for a secure future, please get in touch.
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