|
Business Operated as a Sole Trader.
It is
common for a sole trader to be the key person of the business with
particular skills and experience which may not be easily replaced. In
this situation consider whether the business has value (both physical
assets and goodwill), enabling the business to be sold as a going
concern. If not the only option may be for the business to be wound up
and any monies realised added to your estate.
Sometimes an employee will have been groomed to continue the business
and one option would be to bequeath in your Will an option for the
employee to purchase the business on such terms as you direct which may
include a period of time to raise capital during which a percentage of
profit would be paid to your spouse or residual estate.
Creative thinking can often generate the ways and means of maximising
the returns from your business and your Will can be drafted to
accommodate almost any method of your choice including the special
powers that your Trustees may require to achieve your objectives.
If you
have entered into lease agreements or other binding legal contracts
within the business, then these documents should be consulted to see
what provision has been made for the event of your death and whether any
penalties or rights of assignment etc are contained within.
|
A
Firm Operated in Partnership.
Business partnerships are popular because they are easy to enter into
and have the advantage that at least one other person is contributing
to the costs. If only life was that simple!
Whilst a Partnership can be formed by a simple agreement by the
participants to do so, a Partnership is subject to the Law of
Partnership defined in the Partnership Act (1890), unless the
provisions have been amended or changed by a formal written
Partnership Agreement.
Without an agreement the death of a partner dissolves the firm and the
firm is wound up with the applicable proportion of capital and income
passing to your estate. The surviving partner(s) may wish to continue
trading either on their own account or as a new partnership but will
have to raise the necessary monies to pay into your estate within a
reasonably short period of time which often forces the sale of the
firms assets. |
You
have no rights to bequeath your position as a Partner but you can
bequeath the financial interest you have in the Partnership. Of course
as a Partner you are jointly and severally liable for the firm’s debts,
so if death occurs at a time when your costs and liabilities exceed the
capital the firm can raise, then there may not be any financial interest
to leave. Any outstanding debt would be payable from your estate as the
liability is against the individual Partners and not the Firm.
Partners can take out appropriate insurance cover to provide for the
payment of financial interest on the death of a Partner but even more
preferable is to have a formal Partnership Agreement in addition to
appropriate insurances.
The
agreement will cover many aspects concerned with the effective operation
of the Firm and provide protection for each Partner. In so far as the
death of a Partner is concerned, the agreement can determine the options
and conditions such as whether you can bequeath your Partnership, how
and when any financial interest should be paid to your estate, whether
the firm can continue trading with existing assets and how the accounts
will be treated by the Inland Revenue.
In
this way the combination of a Will and Partnership Agreement will ensure
that your beneficiaries and surviving Partners enjoy an orderly and
planned settlement of your business affairs. Equally, if you are a
surviving Partner, you will enjoy the protection of your business
interests in the same way.
The
Partnership Agreement takes priority over any conflicting clause in a
Will and Executors and Trustees cannot take an active part in the
running of the Firm other than that required to secure the financial
interest of the deceased.
A
Major Shareholder in a Limited Liability Company.
Unlike
the Sole Proprietor or Partnership, a Limited Liability Company has its
own legal identity quite distinct from the shareholders who own it. The
rights of the shareholders are determined by the Company Articles of
Association and can be amended as and when required by the shareholders
subject to certain formalities being observed.
The
Articles will determine what rights the shareholder has in the disposal
of his shares and there is often a requirement to give the other
shareholders an option to purchase upon the death of a shareholder.
Alternatively there may be the option to bequeath shares to certain
family members usually restricted to a spouse and children.
Clearly, before drafting a Will, the Articles need to consulted and if
appropriate, for changes or amendments to be made. The Articles take
precedent over any conflicting clause in a Will and the Executors and
Trustees cannot interfere in any way with the operation of the Company. |
