When an individual dies, everything they owned at the date of death forms part of their estate. This includes property, cash, investments and business assets. Each type of business is handled differently and there are many things to consider, such as what will happen to the business and in some cases whether the business can continue to operate.
What happens to my business assets?
When a business owner dies, their interest in the business forms part of their estate and will be distributed in accordance with their Will or the rules of Intestacy. What happens to the business depends on the structure of the business i.e. limited company, sole trader, partnership.
In the event of the death of a sole trader, the Personal Representatives, as part of Probate and the administration of the estate, are required to take over the business. Their options include selling it as going concern, continuing the business and holding it on trust for the deceased’s beneficiaries if underage, or closing the business down and disposing of the assets.
Under this structure, there is no distinction between the business finances and the personal finances. This means any debts the business had are considered to be personal debts of the Estate. A Will ensures that appropriate executors are appointed and can act immediately to avoid any delay in continuing to run the business.
A limited company is a separate legal entity owned by shareholders, meaning the business and the shareholder’s personal assets are separate.
The deceased’s personal representatives will be responsible for dealing with their shares in accordance with their Will or intestacy. Depending on the circumstances and any separate agreement, the shares can then be sold or transferred to the beneficiaries of the deceased.
The limited company will have rights and restrictions attached to the shares set out in the Articles of Association and any Shareholder Agreement between the shareholders. Either of these documents may contain provisions determining what is to happen in relation to shares owned by a shareholder wo dies.
In the absence of a partnership agreement, if a partner dies, the partnership is dissolved, the assets are realised, the debts are paid and the surplus (if any) is distributed to the surviving partners and the personal representatives of the deceased partner in line with their entitlement. This can be problematic if, on death, the surviving partners want to continue the business.
How can MLP Law help?
Inadequate planning for the death of business owner may lead to complications with the business following the sudden death of an owner. Our experienced team can provide you with advice and assistance in administering estates that contain business assets. We can take full responsibility for dealing with the business and provide specialist support and advice. Our experts can provide you with clear succession planning to allow you to control the destination of the business assets and shares, including bespoke Business Trusts.
Our team can advise you on:
- What happens on death
- Preparation of Business Wills
- Bespoke business trusts
- Cross Option Agreements
- Review of the companies’ articles
- Transferring the ownership of the business
- Winding up a business
- Sale of a business