As a business owner in a partnership, have you thought about the importance of taking your 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 the relevant UK intestacy laws, rather than how you may have envisaged. For example, without a Will, your business will be sold by the Administrator 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 Administrator simply does not have the experience, contacts or knowledge to realise the maximum value of your business.
Through a professionally written Will you can nominate the Executor yourself; someone whom you know and trust, and who can value your business accurately and distribute it effectively, according to the terms of your Will. 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. This could remove the pressure for a quick sale and help them get a better price for it in the future.
There are specific considerations to bear in mind if you are in a partnership, as you need to consider how your Will dovetails with your partnership agreement. A partnership agreement will take precedence over a Will, so if your Will is not written with the partnership agreement in mind, there is a chance that an asset you wished to gift is not actually yours, but instead belongs to the partnership. For example, you may specify a gift of land, but find that, according to the partnership agreement and accounts, the land is actually an asset of the partnership which means that it cannot be gifted through a Will.
HMRC will be likely to take a close look at what constitutes partnership property. This is because the rate of relief for trading partnership property is potentially 100% on death or transfer, but only 50% for property owned by the partner and used in the business. After the death of a partner, HMRC may want to review the partnership agreement to understand how the partnership assets are owned and the partners’ interest in them.
If there is no partnership agreement in place, the only law that applies is the 1890 Partnership Act. If the partnership dissolves (which, under the Act, any partner can do at any time, with no notice) assets may have to be sold on the open market.
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 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 attorney, these issues may not arise.
Setting up an LPA is a straightforward and relatively quick process, but the benefits can be invaluable.