If you own a Limited Company and have not considered a Will for your company yet, please take a moment to read this article.
What is a Limited Company?
A limited company is a type of business that is legally separate from its “owners” like it is a person in its own right in some ways. Usually, the shareholders own the business and the directors manage and run the business. The shareholders and directors can be one and the same person or persons. The company itself has its own tax liability and the shareholders, as owners of the business have their own tax liability. The limited company can employ as many people as it wishes.
What is a Will?
A Will is a legal document that you or your Solicitor would prepare to manage and then distribute your assets after you pass away – it would decide things like who gets the home, who gets the chattels and so on.
What is a Business Will?
A Business Will is like a “normal” Will, as mentioned above, but the difference is that it deals specifically with what should happen to your business when you pass away.
The Issues for a Limited Company:
If you are a director and shareholder of a business, in essence, you work in your own limited company and own your own limited company, what happens when you pass away depends entirely on the Articles of Association.
In all cases, your business assets will pass to the executors of your Will as part of your estate if you have a Will. If you do not have a Will, your estate will instead come under the control of the administrators of your estate once they have been given authority to act, which may take many months.
In accordance with the Articles of Association, the executors will transfer the deceased’s shares in accordance with the terms of the Articles of Association. The remaining director(s) may have to “buy” those shares for a reasonable sum, an agreed sum stated in the Articles or perhaps even be gifted the same.
Exactly how the executors or administrators handle your shares in the limited company will depend on the specifics of the Articles of Association.
For example:
The other shareholders may have the option to buy your shares before your executors sell or transfer those shares to anyone else
The executors might also have the right to require the other shareholders to buy your shares in the limited company.
Once that has taken effect, the executors or administrators would then need to pay any debts or taxes for your share of the business and the estate. They may need to sell some of your business assets to do this.
The executors will then distribute any remaining property or assets (including any business assets or the sale proceeds from them) in accordance with the terms of your Will. If have not left a Will, then the administrators will distribute your net estate according to the Rules of Intestacy.
If you are a shareholder in a limited company, it is vital that you check the Articles of Association to understand what would happen on the death of a shareholder. Articles of Association can be altered by agreement.
It is often very prudent to prepare a Shareholders Agreement (or Cross Option Agreement) specifically to attend to these issues.
It is also vital that your Will dovetails with the Articles of Association (and the Shareholders Agreement/Cross Option Agreement) so that there are no issues that arise later – as often, they can cost huge sums of money to resolve.
If you seek more information on the above, please contact me. If you are a Sole Trader, please click HERE to learn more, and if you want to find out about Wills and Partnerships, please click HERE.
Shak Inayat | 075 38 37 38 38
The information provided in this article is not intended to constitute professional advice and you should take full and comprehensive legal, accountancy or financial advice as appropriate on your individual circumstances by a fully qualified Solicitor, Accountant or Financial Advisor/Mortgage Broker before you embark on any course of action.