As a business owner in an LLP, have you thought of the importance of taking your share of the business into account when writing your Will?
One of the most important parts of business planning is stating how you wish the business to be administered in the event of death, by making a Will. If you die without making a Will (intestate) your family could be involved in a lengthy procedure to be able to access the equity in the business, and all of this at a time when they will probably need it most.
Dying intestate means that your business will be administered according to UK intestacy laws, rather than how you may have envisaged. For example, without a Will, your share of the business will be sold by the Executor appointed by the court under intestacy rules. At worst, this could be someone you have no wish to see dealing with your estate. Or, it could be that the Executor simply does not have the experience, contacts or knowledge to realise the maximum value of your share of the business.
Through a professionally written Will you can nominate the Executor yourself; someone who you know and trust, and who can value your business accurately and distribute it effectively, according to the terms of your Will when the time is right.
You can also use your Will to ensure that your beneficiaries are able to use other assets in your estate to support the business and allow it to carry on trading after the right procedure has been followed. This could remove the pressure for a quick sale and help them get a better price for it in the future.
The lack of a members’ agreement is a particular concern when a member die. Under statute and the Regulations there are no clear provisions dealing with how a deceased’s share of an LLP should be treated. The Regulations and statute prohibit the deceased member’s personal representatives (executors) from being able to:
The personal representatives have an equitable right not to be treated unfairly, from a financial perspective, compared with the remaining members of the LLP. However, how would the personal representatives know if they are being disadvantaged if they are prohibited from any involvement in the business?
These and other issues relating to the day to day management of a LLP can be addressed in a members’ agreement. The preparation of the agreement can also help the member agree and plan for how the purchase of deceased member’s share can be funded which again is often overlooked. Where a members’ agreement and appropriately drafted Wills for the members are in place it can save unnecessary delay, expense and anxiety for the beneficiaries of the estate of a member of a LLP who dies, and help to avoid cash flow problems for the LLP.
Business Lasting Power of Attorney
Business lasting powers of attorney (LPAs) allow you to nominate a person of your choosing to make decisions on your behalf if you are no longer able to do so yourself. Your attorney can access accounts, make payments and deal with the day-to-day running of your share of the business.
If there is no business LPA in place, certain risks arise. For instance, if one of the bank account signatories lacks capacity, the bank can freeze the account to protect the vulnerable adult. Contracts entered into by a person who had capacity, but now lacks it, may become unenforceable owing to their incapacity. Paying creditors, employees or tax becomes difficult, as does running the business generally with a businessperson who now lacks capacity. Investors may require their investments to be returned. By appointing a business LPA, these issues may not arise.
Setting up an LPA is a straightforward and relatively quick process, but the benefits can be invaluable.