Most of us like to think we are invincible, but as Benjamin Franklin said the only thing certain in life is death and taxes, and with that in mind we should all take more care in preparing for the time when we are no longer here.
Dealing with your will and ensuring your nearest and dearest are taken care of once you are gone is one thing, but for entrepreneurs particularly, special attention should also be given to how and to whom their business – or shares in their business – will pass.
First instincts
Your first instinct could be to leave the business to your significant other so they decide what to do with your shares. Or you may simply think it is enough to leave your shares in the business to become available to the other shareholders.
Yet if much of your wealth is bound up in the business itself, you also want to ensure your family gets the benefit you intended from all your hard work. Sadly, many entrepreneurs fail to make proper arrangements in advance of their death to deal with these issues, especially if they die unexpectedly.
Tim Walford-Fitzgerald, private client partner at HW Fisher, says: “It is very common for people not to plan. For many entrepreneurs and business leaders, they assume they will have already sold out or wound up their business before death. It is also a difficult topic to discuss; very often they don’t want to upset family by implying that they can’t run the business and don’t plan at all.”
Lack of planning
Amish Patel, associate at law firm Royds Withy King, says this lack of planning can lead to a number of issues arising on death, “including the business ceasing trading/losing value and goodwill”.
He adds: “An entrepreneur cannot dictate exactly how his or her business is run after their death as this will depend on a number of factors, including the economic climate. However, the entrepreneur can appoint people he or she trusts as executors – who may in turn also appoint people with the necessary expertise in the business – to make sure the business can continue as a going concern. Provided the business can continue, it will then be up to the new owners, once the estate administration is over, as to how the business is run.”
Choosing how your shares are passed on in your will makes sense, but the best way to do this to ensure not only that your loved ones are cared for but that the business continues to thrive is very individual and will depend on the “nature of the business, and what the entrepreneur wishes to happen to the business after death”, says Patel.
Size matters
To some extent, the way shares or business assets are passed on will also depend on the size of the business. For example, smaller companies with a sole owner are likely to encounter different issues to a medium-size company with other owners and more staff, says Andy Butcher, branch principle and chartered financial planner at Raymond James.
