Making a Will if You Own a Business

A sole trader business has no separate legal existence from its owner, so it generally comes to an end on death, and your will simply deals with the underlying business assets, such as equipment, stock and any goodwill, as part of your estate. A partnership may dissolve automatically on the death of a partner unless the partnership agreement provides otherwise, which can have serious consequences for the remaining partners as well as your own estate.

A limited company is a separate legal entity and continues to exist regardless of what happens to any individual shareholder. What changes is who owns the shares, which pass under your will (or the intestacy rules) subject to any restrictions in the company's articles of association or a shareholders' agreement, such as pre-emption rights giving existing shareholders first refusal.

It is a common and serious mistake for a will to say one thing about what happens to a business, while the articles of association or a shareholders' or partnership agreement says something different or incompatible. Where there is a conflict, the company or partnership document usually governs how the business itself operates, which can mean your intended beneficiary receives a gift that does not work as you expected.

Before or alongside making your will, check any shareholders' agreement, partnership agreement and the company's articles for provisions dealing with what happens on the death of an owner, including transmission of shares to personal representatives, pre-emption or compulsory transfer provisions, and valuation mechanisms.

Dealing with a business interest after death is more demanding than a typical estate, requiring an understanding of company law, valuation, and sometimes ongoing management decisions while the estate is administered. Consider whether your chosen executor has the knowledge or willingness to deal with this, or whether you should appoint a professional executor, such as a solicitor or accountant, either alone or alongside a family member.

You can also give your executors specific powers in the will to help them run or wind down a business during administration, such as express powers to carry on the business for a period, borrow money, or engage professional advisers, which is worth discussing with a solicitor if your business will need active management after your death.

Many business owners with co-owners put in place a cross-option agreement, usually alongside life insurance held on trust, which gives the surviving owners the option to buy the deceased owner's share, and gives the deceased's estate the option to require them to do so. This provides certainty and liquidity, since the life insurance proceeds fund the purchase, without forcing an unwanted business relationship between surviving owners and family members who inherit a share.

A cross-option agreement needs to be properly drafted and coordinated with the relevant life policies to work as intended, and it interacts with inheritance tax reliefs in ways that need careful structuring. This is a specialist area and not something to attempt without professional advice.

Business relief can reduce or in some cases eliminate inheritance tax on qualifying business assets, including many trading company shares and interests in a trading partnership or sole trader business, provided certain ownership and trading conditions are met. The rules are detailed, exclude investment businesses in particular, and the government has announced future changes to how relief applies above certain thresholds, so figures and thresholds should always be checked at the time.

Because the availability and value of business relief depends heavily on the specific facts of your business, this is an area where you should take advice from a solicitor or tax adviser rather than assume relief will apply.

If you hold a straightforward shareholding in a company with no shareholders' agreement, no restrictive articles and no complicated succession wishes, an automated online will can often deal with this adequately, alongside a simple gift of the shares to your chosen beneficiary.

Once you have co-owners, a shareholders' or partnership agreement, cross-option arrangements, or a genuine succession plan you want to see carried out, take advice from a solicitor. Getting this wrong can mean your business does not pass as intended, or creates real difficulty for the people left running it.