Your business: what happens upon death?
Many business owners will have put in place a Will dealing with their personal estate upon death, however currently over half of small business owners…
Many business owners will have put in place a Will dealing with their personal estate upon death, however currently over half of small business owners in Britain have left no instructions in their Will nor made provision for how their shares in the company are to be dealt with upon death.
A recent case before the High Court perfectly illustrated the difficulties that can arise upon the death of a business owner. The case concerned a Lancashire cleaning company owned by the deceased who was the sole director and shareholder. Unfortunately there was no provision in the company articles that would enable the executors of his estate to become registered as members of the company, nor was there a surviving director and no appointed company secretary to deal with the shares.
The company had continued to trade following the owner’s death; however its bank froze the company account pending Probate being granted in the estate. This immediately put the survival of the company at grave risk as it was unable to pay staff wages or settle creditors.
The executors of the deceased’s will made an application to Court for an order to be granted amending the company register to appoint them as holders of the deceased’s shares so that they could then pass a resolution appointing a director of the company.
The court acknowledged that the situation was urgent and to ensure the survival of the company, granted the order to amend the register by entering the names of the executors as holders of the deceased’s shares and removing the deceased’s name from the company register. Although this ensured the survival of the company, Court action would not have been required had the deceased taken legal advice to ensure his Will and the company articles made provision for how his shares in the company were to pass upon death.
This case really highlights the importance of ensuring that you have made proper provision for what happens to your business in the event of death. A recent survey found that only 33% of companies had reviewed their articles of association since forming the company. Furthermore only 41% of companies had a shareholders’ agreement and 66% of individuals had no Will in place. It is crucial therefore that business owners should ensure they have a properly drafted Will in place and that the articles of association have been thoroughly reviewed to ensure that upon death, the company can continue to trade and its existence is not placed into jeopardy.
Weightmans can provide expert advice to ensure your business and personal assets pass smoothly upon death and in accordance with your wishes. Contact Doris Raggatt, Solicitor in our Wills, Trust, Tax & Probate team on 0161 214 0584, or Anna Kerrane, Associate within the Corporate team on 0161 233 7330 for further information.