Farewell to You Is Not Goodbye to Your Business

Planning for the future is good business – and that includes preparing for what happens when you’re no longer around. While you may have life insurance, the problems that can arise do not just come down to money. You also need to consider the matters of control and transition. If your spouse were to inherit your business, would they be equipped to run it? Who can step in to ensure your business continues to thrive? These are the types of key questions you need to be asking yourself.

Having a Will

It almost goes without saying, but it’s worth cementing the idea that having a will is absolutely critical. They don’t just ensure that your assets are split exactly according to your wishes, but it also means that things can get moving quickly and efficiently. Not having a will can cause a damaging standstill while the State works out what to do. Can your business really survive this hiatus?

When creating a will, think beyond what will happen to your personal effects and accounts. Consider using an expert that is experienced in what’s necessary from a business viewpoint – this will ensure you’re covered both on personal and business grounds. This is particularly important if a lot of your personal wealth is intimately tied to your business.

What Happens to My Business?

The death of a business partner or sole trader will have a major effect on the continuation of a company. What happens to the business will depend on a number of factors, including whether a sole trader or a partnership run the business and if a will has been put in place. In order to have some control over what happens to the business in the event of your death, it is best to make the appropriate preparations.

A clear written agreement will help to make things easier for everyone involved, from the partners, to the spouse, stockholders and employees. Typically, for a small business the death of a sole trader or partner will terminate the business.

However, if the business is a corporation or limited liability company, then this will continue to exist and the business will maintain ownership of all the assets related to the business. It is the stock or ownership interest that will be transferred, in accordance to the will.

Sole Traders

In the case of a sole trader, the business will be taken over by the PRs (Personal Representatives) of the estate. Unless there is a will naming the Executors, the intestacy rules will come into effect for those relations entitled to act as PRs. Since your business is no separate from your personal assets, it is even more important to have a clear plan of action.

If your business is left with debts, then your personal assets can be used to cover the bill. You should prepare your successors if you do want to pass on the business, and if you plan to sell, you need to do the research to make this as easy and inexpensive as possible. Communication and documentation is key in order to establish a clear path and avoid possible future disagreements.

Partnerships

In the case of a partnership, it depends on the formal partnership agreement. If there is no agreement, then the partnership will be legally dissolved and business activity will cease.

An agreement can help to set out an arrangement in the event of the death of one of the partners. This can provide for the sale or purchase of interest, including a purchasing price. Life insurance can help to fund that purchase and so ensure that the business continues to run.

Proper Documentation Is Critical

No matter the precise status of your company, the takeaway here is that documentation should be a primary concern. And we don’t just mean covering the legal bases either. You also need to ensure you leave a proper plan of action in place.

It is important to put in place the necessary documents in order to create the basis for a smooth ownership transition. Otherwise, those that are expected to look after your business after you’re gone won’t know what to do. You have worked hard to establish your business as a profitable entity, the last thing you want is to lose out on the fruits of your labour.

What Can I Do?

In order to determine the future of your business, you need to take charge and put a plan of action into play. It is not only important in order to determine the fate of your business, but also for tax purposes. For example, leaving the business interests into a trust could be more tax efficient in the long run.

The process is simple:

  1. Work with a business attorney to create the desired result
  2. Determine a suitable business structure, taking into account tax and liability purposes
  3. Work out the finer details of the succession plan within the structure outlined in the first two steps

Using a business attorney can help you to properly define your goals and decide what should happen to your business once you are gone. Getting an expert’s advice will ensure that you get the best results, not only for your business and or business partner, but also for your remaining family members. This may involve selling the business or ensuring that it continues to run; the important part is that you maintain some control over the future of your business.

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