Most people understand the importance of a Will for their personal affairs, but far fewer realise that having the correct arrangements in place for your business is vital too.
For many entrepreneurs, their business and personal lives are interlinked, so considering what happens to business interests if you, or a co-owner, dies or becomes incapacitated, is every bit as important as planning for growth or sale.
By reviewing existing arrangements and assessing them against the current and future needs of the business, we will help you ensure that your business affairs are in order and provide a plan for implementing our recommendations.
Family and owner managed businesses have their own unique cultures which can also bring unique challenges. We will work with you to fully understand your current situation, objectives, opportunities and challenges to help you plan for the future.
Maintaining the values of the business and building on its culture and personality is often a key element of a business’s success. Likewise, succession planning is crucial to any family business, be it passing the business on to the next generation or creating a senior management team to take the reins in the future.
Working alongside you, we can ensure that you have the support in place to achieve your objectives for growth. This could include protecting and future-proofing assets, ensuring that both your personal and business assets are managed correctly and efficiently, helping you put agreements and contracts in place to enable growth and ensuring that the people are in place to support the business’ development.
We are proud to have advised many businesses throughout their business lifecycle, from start up to exit and sometimes start up again. This includes our Private Wealth, Corporate and Employment teams as well as working alongside your wider network of advisors to manage things from both a legal and financial perspective and put joint strategies in place to support both you and the business.
A Business Will is not a document in itself. It’s a process that considers what happens to any overlapping interests if you, as the owner of a business (or a holder of company shares), should die or become incapacitated, or your business suffers a sudden downturn.
The primary aim of the process is to protect your assets. We will work with you to review existing business and personal arrangements and assess them against your immediate needs and future plans. This will help to ensure that your business and personal affairs are in order and provide a plan to implement the recommendations.
The business review will start by examining your existing Articles of Association and any Shareholders’ Agreements that are in place - your finance and banking arrangements and asset structures. This allows us to determine their suitability and revise if necessary. In parallel, we will also review your personal affairs, any Wills, letters of wishes or tax planning to understand your current situation and look at potential future or more immediate scenarios.
After reviewing your current situation, we will recommend and help you to implement a series of steps to ensure both you and your business are in a strong position, both now and in the future.
One important consideration is what to do should a business owner die or become incapacitated to the extent that they cannot make decisions. Who will be in charge? Are Lasting Powers of Attorney (LPA) in place to determine who makes decisions if you are unable to? Does your business have appropriate insurance cover for key individuals?
Each business will have its own unique elements to consider but some of the key areas we consider are:
How are your assets, both personal and business, held? If they are subject to finance, it should be clear where this financial liability will lie should there be an issue with payment. There may also be a need to consider reviewing the asset ownership structure.
We will check if an agreement is in place and what it includes. Any agreement should cover share purchase and transfer terms between shareholders (cross option agreements) that may be required if a key person becomes incapacitated. The agreement should also include where the ultimate ownership and/or control will end up and will link to a review of the business’ Articles of Association.
At the heart of any business is its employees. Identifying key people who you want to retain by offering a future equity stake can be an effective way of keeping them and avoiding them being poached or potentially striking out on their own.
A Will should always deal with business interests as well as personal assets and it should clearly state what happens to any shares in the event of your death. Establishing an LPA ensures that the remaining shareholders (or trusted independent third parties) can continue to make key decisions if another owner becomes incapacitated. We will review your business structures to ensure that your personal arrangements are kept in line with your business framework.
Good inheritance tax planning is crucial if you are passing your shares on to others as it can reduce the tax burden. Consideration will need to be given to business relief for IHT purposes and how that can be protected without simply relying on a spouse exemption. Senior managers may also need incorporating into Shareholders’ Agreements for any transition period.
Whether you are in a new or existing relationship, we work closely with the Family team at BPE and can advise on relevant agreements you can put in place to protect your assets and plan for the future.
One of the biggest challenges encountered by family and owner managed businesses is the question of succession.
Be it a long-established business which has already passed through several generations or a relatively new start up, there will come a time when you have to consider whether or not the next generation will take the company forward.
Your children or other close relatives may already be working in the business. This level of engagement is a huge positive and will give the opportunity for them to shadow others, receive training both on the job and more formally and get up to speed with how the business runs. They may already be contributing in terms of future direction and objectives for the business.
The opposite may also be true with the next generation already established or forging their own careers independently. There may be opportunity for them to become involved with the business, but their personal situations may mean this is not the right step for them - for example, career stage, family commitments or geography. Equally, they may not have the drive, interest or aptitude to take on the helm and move the business forward.
The other option is to look at senior management. Key individuals may well have been with the company for a long time, developing it into the organisation it is today, others may have been recruited later on for their specific skill sets. Whilst considering a management buyout option for what has traditionally been a family or owner managed business may not be the first option, with the right people and support structure in place it could be a good solution.
When considering the right time to let go of the reins or to sell the business, we always recommend looking at when you ideally want that exit and work backwards from there. Exit planning isn’t an easy process and takes time to ensure that the business is in the best possible place for success, all appropriate support is in place and key people are ready to take it on.
We strongly recommend consulting with professional advisors at this point who can help and guide you through the process. At BPE we regularly advise clients throughout the business lifecycle and our Corporate and Private Wealth teams collaborate to ensure that any exit will also achieve your personal goals, be that retirement or a new venture.
Establishing powers of attorney for an owner’s business interests means that a trusted, designated person is clearly nominated to take on decision making, representing the owner’s best interests. Often this is an adviser (like an accountant or lawyer) who knows the business but is neither an employee nor family member. Individuals often choose to appoint a business partner, however there is a risk of conflict if the business partner is having to make decisions on behalf of the owner as Attorney, which could conflict with the decision they would have made in their own right. This can be solved by considering a combination of Attorneys, which can include a business partner but not exclusively. This helps everyone during a difficult period; relieving pressure from the individual and their family, while ensuring that business decisions don’t all fall solely on the shoulders of remaining shareholders.
Delegation of powers under an LPA may only be required as a temporary measure until an owner is back on their feet and having a designated person to provide a safe pair of hands during a difficult time is even more valuable if an owner dies suddenly.
For more information on Lasting Powers of Attorney, click here.
