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Wealth protection for business owners

21st April, 2015

When running a business there is so much to think about that often wealth protection and succession planning 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.

Forward Planning

Protecting your assets and your finances is something which must be considered as early as possible in the process to receive the maximum benefits afforded to business owners.

Ideally you need to know what your ‘end-game’ for the business is when you set it up – will you eventually hope to sell? Or do you intend to pass the business down to future generations?

This will have a knock-on effect as to the kind of company you found and your tax and succession planning – it’s all about using the most advantageous corporate structure for your business needs.

What kind of company are you setting up?

Running a business as a sole trader or in 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 be protected to a degree, but you need to determine the most tax efficient and commercially savvy way in which to operate.

Trading companies can benefit from business property relief for inheritance tax, whereas an investment company, such as a property business, will not. If you are thinking of selling or gifting your business you ought to be aware of whether your business will qualify for business property relief for inheritance tax or entrepreneurs relief for capital gains tax.

What happens if you can no longer run the business?

You need to have a plan as to what will happen if you can no longer run the business due to serious illness or unexpected death.

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.  Missing out on business property relief can potentially be a huge financial loss.

It’s essential that business owners not only have the right will but also take out the right kind of insurance to help protect the business against loss through illness or death of a key player in the business. We would advise companies with more than one main shareholder to take out a cross-option agreement, which would allow the remaining shareholders to buy back the remaining shares left in trust. This kind of agreement makes everything clear in terms of how the shares are valued and distributed, leaving no room for the unpleasant fallout which can occur in the absence of a legal agreement.

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

It’s very important that there is someone appointed to take over the company’s finances in this situation. If a business owner is unexpectedly incapacitated and there is no one authorised to operate the business’s bank accounts, it could be potentially very damaging to the health of the business – and once the situation arises it’s too late to do anything about it.

It’s all about forward planning and taking the time to consider what is 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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