As a business owner, you’ve probably thought about what will happen when you want to retire or if you die. You may not have considered putting those details in your will. Including your plans to wind up the business or pass it on in your will makes everything more straightforward for your loved ones, executors and co-directors. Here are a few things to think about to make business succession planning part of your will.

What will happen to your clients?

When you’ve built a successful business, you probably have a few loyal clients. If you want the business to wind up when you’re gone, do you need to transfer your clients to someone else or refer them to another provider? This may depend on your business type and any applicable regulatory requirements.

It’s also worth considering whether your executors will need to contact clients and where they’ll find the details. You might also think about what you want them to say if they get in touch.

Practical details

Your will should include details of who inherits your business or shares, but other practical considerations will make the transition easier. We’ve mentioned contacting clients, but your executors or co-directors will need other essential information to administer your estate or keep the business running. Having details of your accountant or solicitor will help them gather additional information. They’ll also need access to your systems and business information, so consider setting up sharing systems in advance for use as needed.

This should be straightforward if you co-own the business with someone who’ll keep it running, but it’s a good idea to check you’ve provided access to everything they’ll need.

Limited companies

If you’re the sole director of a limited company, you may need to appoint an interim director to wind the business up or manage it while it’s sold or transferred. Your business articles will set out what happens in various circumstances, and you must ensure your will matches them. Otherwise, the articles take precedence, which could mean your executors can’t carry out the provisions set out in your will.

When you’ve taken the time to consider what will happen to your clients, an interim director can ensure they’re looked after, especially if the business is going to keep going after you’re gone. The interim director can also deal with other practicalities, such as ensuring your employees and suppliers are paid.

Shareholder agreements

Having the right documents in place makes the transition more straightforward after you’re gone. Your will sets out who will inherit your shares, but you should also have a shareholder agreement and a cross-option agreement in place.

A shareholders’ agreement is a legally binding contract between shareholders that sets out how the company is governed and how shares can be issued, transferred or sold. If there’s any dispute over shares, the shareholder agreement can help to resolve it.

A cross-option agreement is another contract between shareholders that governs what happens if a shareholder dies. Your shares will pass to your beneficiaries under your will. With a cross-option agreement, if the surviving shareholders decide they want to buy them, your loved ones must sell. Equally, if your beneficiaries decide they want to sell the shares, the shareholders must buy them. The agreement is usually backed by insurance that can fund the purchase.

Business property relief can reduce the amount of inheritance tax you pay when passing on the business or your shares in your will. To qualify, your will can give shareholders the option to sell the business, but you can’t force a sale by using a contract.

You should always get professional advice to ensure you’ve got the right documents and insurance in place, and understand the legal and financial impact of your decisions.

Selling the business

You can give your beneficiaries the option to sell your shares if they want to. Your shareholder agreement may include a provision that if one shareholder dies, then the other shareholders have the option to buy their shares. However, they don’t have to. If they want to buy your shares, they’ll need to find the money. This can be funded by life insurance that pays out to the other directors in trust. There are tax implications, so always speak to your accountant.

Do your documents need updating?

If you’ve been in business for a long time, it’s worth checking your articles of association to see what provisions they include. Newer articles give executors the power to appoint a director to manage the business and bank account, but older articles from the 1980s and 1990s don’t. You can update your articles if you need to.

If you need to make a will that includes your business and covers succession planning, we can help. Get in touch using the form below or call us on 0116 380 0752.