Businesses spend a great deal of time analysing risk, but when it comes to the potential for people who lead companies to unexpected die, business owners will often prefer to avoid a discussion about their own mortality. This is a particular issue for small businesses, managed by sole traders, partners or families, whose success can rely almost entirely on the skills, reputation and knowledge of one or two people. Considering that 90% of UK businesses employ less than 50 staff, it would seem likely that many thousands of businesses may be in this vulnerable position.
Human resources consultants, who advise small and medium sized enterprises, can play a vital role in reducing the risk to businesses caused by the sudden loss of their owners. It may be a bit awkward to raise the likelihood of a business owner’s unexpected demise, as the arrangements people make for their death can feel distinctly off limits. But substitute ‘sudden death’ for ‘succession planning’ or ‘business continuity management’, and when the subject is raised with tact and sensitivity, these discussions can be made to feel a lot more comfortable.
Take for example the case of a web design company owned by business partners Natalie and Gregory. Being friends for many years they had felt it completely unnecessary to have a formal partnership agreement, although the business was growing quickly and they employed three staff. When Natalie died unexpectedly in a car accident, the lack of a formal partnership agreement mandated that the business had to close, by virtue of the Partnership Act 1890. Under this legislation the dissolution of the partnership became Gregory’s responsibility and it took well over a year. Debts were paid, assets liquidated and all three staff were made redundant. The very small surplus was then shared between Gregory and Natalie’s estranged (and much despised) husband Philip, as she died intestate without leaving a will. After dissolution, Gregory began the hard work of starting another design business from scratch. Natalie’s long term ambition, that her daughter Camilla (who was studying design at university) would succeed her in a profitable and expanding business, was never realised.
And yet, with effective estate planning, this scenario could have turned out very differently for everyone after Natalie’s death.
Advising sole traders, partners or family businesses, on how to safeguard the final wishes of the business owner, can be broken down into three specific areas:
- Succession or Sale.
- Taxation Management.
- Interim Management (Choosing the Executor)
In next three posts we’ll explore these areas in more detail and the options for advising small business owners. These posts are not intended to make HR consultants experts in estate planning, but they will give them the insight and confidence to begin asking the right questions.
[Note: the content of this blog applies to England and Wales only, as other jurisdictions have different laws and legal processes. In addition, this blog is not a substitute for personalised guidance from a professional adviser and is for information only.]
Recent Comments