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Wealth Protection for Business Owners

19th June, 2019

When running a business there is so much to think about that often, wealth protection and succession planning fall 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 the long run.

Protecting your business assets 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?

Firstly you need to look at what kind of company you are 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.

Inheritance Tax Relief

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 to the business on 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 heir’s significant sums.

Key Man Insurance

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. Companies with more than one main shareholder should consider cross-option agreements, which would allow the remaining shareholders to buy back the deceased’s shares. 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.

Do you have a Power of Attorney in Place?

Particularly in the case of sole traders, or key directors, it’s advisable to have a Lasting Power of Attorney 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 authorized 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.

To discuss making a Will or to review your existing Will please contact Lynda Richards who is a partner in our Wills, Trusts and Tax team. Lynda is a member of The Society of Trust and Estate Practitioners and is recommended in the independent directories, Legal 500 and Chambers & Partners.

Lynda Richards

Wills, Trusts & Tax

Email: [email protected]
Tel: 01743 294 122

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