Why business owners should have a will…and what it should include
Why business owners should have a will…and what it should include
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Future planning is essential for any business owner and planning for what happens to your business after your death requires the same careful consideration.
Hannah Thomas, Partner in the Wills & Probate team at Harding Evans, explains why writing and regularly updating your Will should form a core part of your long-term strategy.
Firstly, a Will should clearly express whether you want the business to be sold, pass to family members, or continue under the guidance of someone trusted.
It can also provide executors with the power to continue running the business before probate is granted – vital for ensuring operations continue smoothly.
Choosing the right executors is critical and many business owners appoint both a professional (such as a solicitor) and someone familiar with the business.
It is also important to understand how the business is owned: which assets do you hold personally, and which are held within the business structure? These distinctions directly affect how those assets can be distributed.
Planning for Different Business Structures
- Sole Trader
A sole trader business ceases when the owner dies; the business itself cannot be transferred. However, its assets pass to the executors, who may need to sell them to pay debts and taxes before distributing any remaining value according to the Will.
If your wish is for your business to continue after your death, your Will should direct the business assets to someone with the appropriate skills, resources and desire to carry it on.
- Partnership
Most partnerships operate under a Partnership Agreement, which usually outlines what happens upon a partner’s death. Your share of the capital or income then passes to your executors and is dealt with under your Will.
It is essential to review the Partnership Agreement before making your Will to avoid conflicts between the two. Your Will can only transfer your financial interest in the partnership, not your role.
- Limited Company
A limited company has a legal identity separate from its shareholders. Rights relating to share ownership, including what happens to shares upon death, are usually set out in the company’s Articles of Association.
If these provisions conflict with your Will, the Articles prevail. It is best to have a Will that aligns with the Articles to avoid complications.
Inheritance Tax Considerations
Inheritance tax (IHT) planning is especially important and obtaining a professional business valuation can support this. A properly drafted Will can be structured to maximise the availability
of tax reliefs, including Business Relief, which can reduce the taxable value of qualifying business assets by 50% or 100%.
Considering Trusts in Your Will
Many business owners choose to include a discretionary trust in their Will, providing flexibility and allowing trustees to make appropriate decisions at the time of your death.
It is wise to prepare a detailed letter of wishes for your trustees to guide them on how you want the business handled, how income and capital should be treated and how different beneficiaries should be prioritised.
In Summary, a carefully drafted Will is one of the most important tools a business owner can have. It ensures clarity, protects your business, supports your loved ones, and enables thoughtful tax planning. It also ensures that your business continues – or is wound down – in the way you intend.
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