Middle aged man deep in thought

2 weeks ago

What Happens if a Business Owner Dies?

It’s estimated that we spend one third of our life with our colleagues, so it’s no surprise that the death of a teammate can take its toll. The death of an owner can have significant implications for a business, and the specific procedures and outcomes will vary depending on the structure, whether it's a sole trader, partnership or limited company.

In this no-nonsense guide, we provide an overview of what happens in each case and offer some insights into managing a challenging transition.

Sole Traders

For sole traders, the business is not a separate legal entity from the owner. So when a sole trader dies, the company effectively ceases to exist unless arrangements are made for the name to be transferred or sold to a new owner.

  1. Notification: The executor or administrator of the estate must inform HMRC and other relevant authorities of the death.

  2. Settling Debts: Any business debts must be settled from the estate.

  3. Distribution of Assets: After the debts are paid, any remaining assets will be distributed according to the will.

  4. Continuing the Business: If the business continues, it will be transferred to a beneficiary or sold.

Man on laptop thinking

Partnerships

If the business operates as a partnership, the outcome will depend on the agreement and whether it includes provisions for the death of a partner.

  1. Surviving Partners: The partnership agreement may allow the surviving partners to continue the business. The deceased partner's share will usually be paid out to the estate or purchased by the remaining business owners.

  2. Dissolution: If no agreement exists or the remaining partners decide so, the partnership could be dissolved.

Limited Companies

For limited companies, the death of a shareholder or managing director, can be more complex. However the company itself will continue to exist as a separate legal entity.

  1. Notification: The death must be reported to Companies House.

  2. Share Transfer: The deceased's shares will be transferred according to the will.

  3. Directorship: If the deceased was a director, the company's agreement will determine how a new director is appointed. The company may continue with the remaining directors or appoint a new one as needed.

Tax Liabilities

  • Inheritance Tax (IHT): Business assets may qualify for Business Relief, potentially reducing the amount of tax due. This exemption applies to shares in unlisted companies, sole trader businesses or interests in a partnership.

  • Estate Planning: Effective estate planning can help manage the transition and minimise tax liabilities. It can include forward-planning tasks such as setting up a will and trust.

Even with some clever planning and a helping hand from Business Relief, the amount of Inheritance Tax due can be significant. For example, IHT rates can vary between 36% and 40% in the UK.

We can help you find the most suitable tax loan for your business. Our comprehensive comparison service covers a range of business loans from high street banks to specialised lenders and challenger banks.

In Summary

Sole Traders

The business ceases to exist unless transferred or sold.

Partnerships

The partnership agreement may lead to dissolution.

Limited Companies

The company continues, with shares transferred.

Tax Considerations

Business Relief may apply to help reduce Inheritance Tax.

It’s important that business owners consult with legal and financial professionals to ensure that their company can transition smoothly in the event of their death, minimising the impact on their beneficiaries, partners and employees. Proper planning can provide peace of mind and help safeguard the future of your business and colleagues.

Safeguard Your Business

Business Protection insurance protects your company against the unexpected absence of a director or key employee. Compare providers to assess coverage options, consider specialised coverage needs and review policy terms and exclusions.

Consider Investing in MHFA Training

The prevalence of mental health issues in the workplace is a growing concern, with worrying research indicating that one in six employees experiences common challenges. These issues can significantly impact productivity, morale and business performance.

By investing in MHFA training, your business could empower its employees to recognise and respond effectively to indicators of poor mental health. Employers have a legal responsibility and duty of care to safeguard the mental well-being of their workforce. Creating a mentally healthy workplace fulfils this obligation and could enhance employee retention and loyalty.

Beyond the legal responsibility and benefits to your business, investing in MHFA training can help you develop a positive working environment in which you demonstrate that you care for the well-being of the people who make up your business. Subsequently, MHFA training can help reduce work-related mental health issues, adding to the value you offer to your employees.

Let us Help Your Business

We help you compare essential business products and services, ensuring you get the best deal and helping you with your bottom line. Save time and money with us by comparing today.

Business Loans icon

Business Bank Accounts icon

Invoice Finance icon

Business Energy icon

Business Broadband icon

Card Machines icon

Business Credit Cards icon

Business Insurance icon

Leased Lines icon

https://images.businesscomparison.com/img/themes/flounder/logo-weeman.svg

Sam White