What Will Happen to Your Business When You Die

Date Added: 02 February 2011

When a businessman or woman has died their Executors are responsible for settling their financial affairs. More specifically the role and responsibilities of the Executors will depend on how the business was structured – whether the deceased was running the business as a sole trader, a partner, or a shareholder; the terms of the Will, and whether the business is to be sold as a going concern, wound up, transferred to a beneficiary or carried on in the longer term by the Executors.

This article deals with the preliminary steps required in relation to sole trader businesses only and not with partnerships, companies and agricultural property.

Many types of sole trader business are nowadays beset by trade or professional regulations which may be easily overlooked by an unsuspecting Executor. Executors responsible for the estate of a sole trader or practitioner should consider the early appointment of a specialist manager, although in some cases a beneficiary may be the appropriate person to run the business on behalf of the Executors.

Identification of assets and liabilities of the business
The Executors must identify the assets and liabilities of the business as soon as possible. The last set of accounts will be helpful and the accountants should be instructed to put in hand the accounts to the date of death.

The Executors will want to maximize both the value of the business for the estate and the extent of Business Property Relief to minimize the impact of Inheritance Tax, but they must also be aware of their own potential exposure to risk of personal liability.

Carrying on the business
If the Executors do carry on the business, other than as a temporary measure to facilitate disposal or transfer, then they will be personally liable for all trade debts incurred after the death, and will have a right of indemnity from the estate ONLY if the Will authorises them to continue the business. A well drawn Will is vital therefore if a business is to continue after death.

Preliminary Steps
Whether the business is to be carried on in the long-term, sold, wound up, or transferred to a beneficiary, it is likely that the Executors will be running it for at least an interim period and there are various preliminaries to be dealt with such as:-

• (a) VAT – Registration and returns.
• (b) Trading name. The provisions of the Companies Act 2006 will apply to the Executors.
• (c) Bank Accounts: The Executors must implement new banking arrangements.
• (d) Employees: Transfer of employment contracts, redundancy liabilities and payment of wages.
• (e) Tenancies and property e.g. as to notices.
• (f) Personal liability e.g. potential criminal liability under health & safety and environmental legislation.
• (g) Contracts to be completed by sub-contracting if necessary.
• (h) Debts. Known debts and advertising for debts in accordance with Section 27 of the Trustee Act 1925.

Specialist businesses, e.g. farming, will have their own requirements.
RICHARD RIX
Solicitor

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