Business succession planning

Dying, death and bereavement are uncomfortable subjects at any time. But in the wake of Dying Matters Awareness Week, which takes place every May, it is worth considering the legalities surrounding end-of-life preparation in regards to business planning and succession, particularly as the Government intends to review Deeds of Variation which allow a review of the provisions of a Will after death.


When planning for succession of a business or business interest on death, it is important to ensure that the legal structure of the business has been ascertained, and the governing documentation, such as the Memorandum and Articles of Association, Shareholders Agreement, Option Agreement or Partnership Agreement have been checked, as these will have an impact on the succession of business assets.


For example, the company Articles may include a provision that the remaining directors may refuse to register a share transfer. Partnership agreements usually provide that surviving partners have an option to purchase the deceased’s share of the business on an agreed basis of valuation, and it should be clear whether this is a date of death or historical accounts valuation. In the case of company shares, there may be pre-emption rights enabling other shareholders to purchase a deceased’s shareholding, again with a specific basis of valuation.


Cross-option agreements are common, whereby a shareholder can take out life insurance on his/her life written in trust for other shareholders, with an option for the shareholders to purchase the shareholding on death from the estate using the policy proceeds. There should be no agreement to ‘buy and sell’ a deceased’s shares or partnership interest on death, as business property relief from inheritance tax could be lost. Business property relief can relieve the tax on the business or business assets at 100% or 50%. For example, a property held outside of a partnership and used in the business may attract relief at 50%, but if moved into the business could attract 100% relief. Excessive rental income and non-trading activity, or cash reserves within a business may also threaten the relief. Again, care must be taken to obtain specialist advice on succession planning as otherwise the relief from inheritance tax may not be maximised.


Finally, ensure that there are Lasting Powers of Attorney for Property and Affairs in place in case of physical frailty or loss of mental capacity that can enable a trusted individual to step in if required. Also, ensure that the Will is drafted by a specialist who has experience in maximising available reliefs and minimising inheritance tax.


Mogers Drewett’s Private Client Team has particular expertise in assisting with planning for succession of businesses or business interests on death, and has been awarded the prestigious Law Society quality accreditation in Wills and Inheritance for the second year. To achieve this accreditation the team of 20, based at the firm’s offices in Bath, Wells, Sherborne and Frome Agricultural Market, has demonstrated compliance with Law Society quality protocols and procedures, and has demonstrated high standards of client advice and service to achieve the WIQS accreditation.


The demise of a business partner is almost always an inevitability, but through proper planning the sad loss of a partner need not create additional problems for remaining partners or the business.

Mogers Drewett

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