|
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.
|
