Sometimes, a business needs many years and much effort to develop and succeed - and all can be in vain if you don’t have a succession plan. Most young and middle-aged entrepreneurs don’t consider the fact that they might die and everything they have been working on may be gone with them. When a business owner dies, this affects the future of the whole company and its employees. Also, it can make a real mess for the family and partners if you don’t sort out some important questions such as the control over the business.
Naturally, people make wills to distribute their assets just the way they want it. However, deciding on the future of your business may not be as simple as deciding on the distribution of property only. You have to think very carefully and act in order to protect your and your family’s best interests. To prevent a real chaos from happening after you die, it would be good to have a plan and work it out with your attorney, loved ones and partners to ensure that your business ideas live even after you’re gone.
Being a sole trader has lots of benefits. The sole proprietorship is the traditional way of doing business where only one person is in charge of business and it’s hard to separate the company from its owner. Also, the taxes are not corporate – they are based on a personal income. However, such businesses are not without certain disadvantages – a business owner is personally liable for paying taxes and debts, and his personal assets are at risk should anything goes wrong.
One of the disadvantages is uncertain business lifespan - if the owner dies, the business usually dies with them. In the case of the owner’s death, representatives of the estate will take over the business. A personal representative is a person who carries the responsibility of acting on decedent’s behalf. They usually take care of the person’s financial affairs (raising money to pay off debts, distributing possessions to beneficiaries, estate and business appraisals, protecting the decedent’s assets etc.).
A personal representative can be named in the will, appointed by the court or selected by the deceased. It’s a wise decision to hire an expert to write a will and select at least two representatives -to have a substitute in case that one of them can’t fulfill their duties. The role of a personal representative is not without the burden though – it’s a great responsibility and this duty should be given to people (or institutions) to whom you trust.
Family and partnership businesses
Whether the business is owned by you (with family members as employees), or run by the whole family together – deciding on heirs and asset distribution are always involved. Distribution is probably the hardest decision as not all family members are equally involved in the business. Most owners try to divide the business according to the member’s contribution and it’s probably the most logical decision. Regardless of your intentions, it’s not wise leaving the business without any plans for the transition.
The lack of any decision may leave the family divided if they are all fighting for the manager/owner position. Sometimes, the spouse and children don’t want to continue the business and it’s good to consider this option before it’s too late. The period after your death will be a real turmoil – and leaving your loved ones without any will and plan will cause a mess in their lives and make these times even more frustrating.
If you have partners you’re not related to, it doesn’t mean you shouldn’t think about what will happen with your joint business after you’re gone. In this case (as with family companies), succession planning in is necessary to help remaining partners carry on with the business. The lack of any agreement will lead to partnership termination after the partner’s death. The aim of the agreement is to provide the rest of the partners in the company with an opportunity to buy the deceased’s share of business.
The importance of planning and writing a will
Death is not the topic most of us like to think about. However, we can’t run from it, and we can certainly make it less painful for the others who are close to us. Writing a will is crucial if you want to secure the future of your business and spare your family from making difficult decisions.
The first step in writing a will is making a decision on your personal representative and beneficiaries who will inherit the assets. The next step is determining a desired business structure and developing a detailed succession plan. Finally, you need to consult with an attorney and make a will that will put your wishes into practice. This is the only way to ensure that your business passes on to people who will carry out your plans just the way you want.
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