While a lot of people don’t want to think about death, it’s important the future of your assets are addressed, especially if you own or have assets in a business. The division of a business can be complicated at the best of times, this becoming even more so if you are no longer around to dictate who gets what.
Here are the three biggest things to take into consideration when preparing for the future of your business after your death:
What will happen to the management of the business?
It is important the management of the business is taken care of in the event of your absence. While this will depend on the business structure (if it is a partnership or if there is someone else capable of taking over), this is something that needs to be addressed that would not typically go in a will.
An agreement of this kind can be put in an employment contract or shareholder agreement/ buy and sell agreement depending on the business. It is vital this element is discussed in detail with the partners or person set to take on your role in the event of your demise. This ensures everyone is fully aware of their roles and responsibilities and no one is left in the dark as to your potential replacement.
In the event you are an owner and have nobody qualified or willing to take on your position, the executor of your estate could choose to close and liquidate the business or take on someone qualified to fill your shoes. While you could indicate to the executor your preference in this event, this is non-binding. This means your set executor can ultimately decide on the future of the business in the case of your death.
Who will get ownership of your assets in a business?
It is important to emphasise merely passing on your assets of a business does not automatically ensure a smooth transition. The people whom you may want to receive your assets may be different from the person capable of taking on your position.
In the case of a person who owns all shares in the business, the owner can leave the entire asset pool to the executor of their will to distribute. However, in a situation where there are multiple owners/shareholders in the business and one passes away, the pre-appointed clauses in the shareholder/buy and sell agreement should come into place. These agreements should be determined prior to the death of the party under the agreement of all shareholders. If such agreement is in place, it is likely power will be left to other shareholders to either buy out or sell off the deceased owners share. This agreement would also minimise the chance any assets could be passed onto unfamiliar family members.
In the event a shareholder agreement/buy and sell agreement is not in place to address the death of one of the partners/shareholders, it is possible the remaining shares could be distributed among the family. This would not be ideal for the remaining owners if the family members are unfamiliar with the business.
Who will be the executor in charge of the business’s interests?
The executor in charge of dividing your assets, business or shares will be elected and agreed upon by all parties in the shareholder/buy and sell agreement. It is important this is clearly laid out in the agreement to decrease the chance of any disagreements or hostilities in the event of death.
As you can see, it is vital you plan and are aware of how your business assets should be divided in the event of your death. When business assets and shares become involved, it mightn’t necessarily be as easy as putting your preferences in your will. It is important to consider who will take on your physical position if anyone, whether the business assets will be needed or can be liquidised and whether your partners will buy out your shares or if your family will receive them. By addressing these things now, you will likely save your loved ones and business partners a lot of unneeded stress.
Kym Butler is the founder of Butlers Business Lawyers. Bringing decades of experience to the Newcastle region, Kym is a solicitor of the Supreme Court of New South Wales, Chartered Tax Advisor, and Fellow of the Institute of Chartered Accountants. Kym has combined his legal and accounting qualifications to build a unique firm where he continues to lead an expert team of commercial law professionals today.