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Wealth protection for business owners

12th June, 2015

When running a business there is so much to think about that often, wealth protection can fall pretty far down the list of priorities.

But if you don’t consider protecting your business assets from the outset and seek professional advice, it could end up costing you far more in long run.

Lynda Richards, Wills, Trusts and Tax solicitor at Aaron & Partners LLP, outlines the main areas you need to think about in terms of wealth protection when running a business.

Lynda comments: “Firstly you need to look at what kind of company you are setting up or running. Operating a business as a sole trader or as a partnership can expose your personal assets to potential claims should your business falter.

“However, if you form a limited liability partnership, or a limited company, your personal assets will generally be protected, but you need to determine the most tax efficient and commercially savvy way in which to operate depending on your circumstances.”

Lynda explained: “Trading businesses can benefit from a very valuable relief for inheritance tax purposes, known as business property relief, but businesses which are considered to be ‘investment businesses’ will not. If you are thinking of selling your business or passing it on to your children, you should take advice on whether your business will qualify for inheritance tax relief or capital gains tax relief so you can plan accordingly.”

There is also the question of what happens to the business in the event of a serious illness or unexpected death of a key individual.

Lynda said: “People don’t like to think about making a will, and they may not see the connection with their business. But if a business owner dies without leaving a will, it will end up passing in accordance with the intestacy provisions and potentially might end up with some-one who has no knowledge of the business.”

“Having the right will in place with provision to make the most of the available inheritance tax reliefs, can potentially save your heirs significant sums.”

“It’s essential that business owners not only have the right will but also ensure that the right legal framework is in place to help protect the business against loss through the illness or death of a key player in the business. Where there is a limited company for example with two or more shareholders, is there a cross option agreement in place, setting out what would happen in the event of the death of a shareholder and is there key man insurance in place to generate funds to buy out a deceased’s shareholder’s stake in the business?”

Particularly in the case of sole traders, or key directors, it’s advisable to have a Power of Attorney in place so that someone can assume responsibility for the business in the event of a key individual becoming incapacitated.

Lynda said: “It’s important that there is someone appointed to take over the decision making and finances in this situation. If a business owner is unexpectedly incapacitated and there is no one authorised to operate the business’s bank accounts, for example, it could be potentially very damaging to the health of the business.

“It’s all about forward planning and taking the time to consider what protective measures are best for your business then getting those measures in place as soon as possible.”

For further information and advice in relation to wealth protection for business owners, please contact Lynda Richards on 01743 443212 or email: [email protected]

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