For owners or shareholders, it’s important to consider who will inherit your business shares or interests. Risks of not giving this your attention before death could result in excessive inheritance taxes for loved ones, or loss of value.
What, if any, impact would your business or shares have if you died without including them in your will?
If a business owner or shareholder were to die without leaving a Will, their business or shares would pass in accordance with the intestacy rules. If a business owner or shareholder were to die leaving a Will, but without specifically mentioning the business/shares, this would then pass in accordance with the residue.
However, it is important to note that there may be a Partnership Agreement or Shareholder Agreement in place which could override this. Such Agreement could dictate what is to happen to the deceased’s share of the business or shares. You should seek legal advice on drafting such an Agreement to ensure it accords with your wishes.
How can a solicitor help you leave a business or shares to someone in your will?
A solicitor can help a business owner/shareholder leave their business interest/shares to the right person. Without the appropriate Will in place, such business/shares might pass to someone who does not have the skills or interest in running it properly. A solicitor can also help to distribute the rest of your estate so that everyone is treated fairly.
A solicitor would also be able to advise on any inheritance tax implications and discuss the options of leaving the business interest in a discretionary trust so that your chosen beneficiary/beneficiaries can benefit from the assets through the trust but without it being taken into account on their death.
A solicitor can also discuss the capital gains tax implications of your business interests when tax planning, especially in relation to a discretionary trust.
Do other shareholders have to accept a new shareholder if you leave shares in your will?
The short answer to this question is yes, if sufficient safeguards are not in place.
When a company shareholder dies, ownership of their shares may be transferred to whomever inherits them under the terms of the deceased’s Will/intestacy rules. However, this will be subject to the provisions in the Articles of Association/Shareholder’s Agreement which take precedence and may include restrictions of the transfer of shares. There may be for instance an arrangement in place to buy the deceased’s shares.
If the shares are in a private limited company that has the model articles of association, then the beneficiary of the shares is recognised as having title to that respective share and is known as a transmittee. However, the transmittee would not yet have the right to attend or vote at a general meeting, or agree to a proposed written resolution, unless they notify the company in writing of that wish. It is also possible for a transmittee to transfer their shares to a third party. If this is desired, then the transmittee should seek legal advice to draft the necessary instrument of transfer.
If the deceased was part of a partnership, the Partnership Agreement would need to be reviewed to ascertain how the deceased’s share is to be dealt with. It may state for example that the continuing partners are to purchase the deceased’s share.
However, if neither is in place, then the new partners/shareholders will need to accept the new partner/shareholder.
What disputes can arise when leaving a business or shares to someone in your will?
If the right documentation is not put in place, you could have people inheriting shares in a business, who do not have any business knowledge, making important business decisions. This would not be good for the business or remaining shareholders. If it is a family business for example, you could have a family member inheriting and receiving an equal share of the dividends when having no skills or experience to run it property. You could end up with there being a conflict as to how the business should be run.
What inheritance tax issues should someone leaving a business in their will be aware of?
There are certain types of business that qualify for a relief from inheritance tax called Business Property Relief of which two rates apply: 100% and 50%. Business Property Relief is intended to shelter assets from inheritance tax where having to pay tax might otherwise force a sale of say a family business. To be eligible for Business Property Relief, an asset must be in use in a qualifying business at the date of death. There are other conditions that also must be met, such as the deceased must have owned the qualifying business for the two years before the date of death.
If the full rate of Business Property Relief applies then no inheritance tax will be payable. However, if Business Property Relief does not apply at all then the full value of the business will be included within the estate for inheritance tax purposes and taxed accordingly.
If your business is of an agricultural nature then Agricultural Relief may be available in lieu of Business Property Relief. It is important to discuss with a solicitor the nature of your business to ensure that exposure to inheritance tax from your business interest is minimised.
How can Ellisons help?
At Ellisons our specialist Private Client Solicitors are able to help you plan for your future. By instructing our respected Wills, Trusts and Probate Solicitors in Essex and Suffolk you can plan ahead making sure your family is provided for in the future. Contact the Ellisons’ specialist Private Client Solicitors today on 01206 764477 or email us at firstname.lastname@example.org.