Consequences for business owners without a will
A Will is especially important for small business owners. Without an estate plan, family members can be forced to endure the consequence of inaction, with businesses and income ceasing. If you are the sole director of a company, your death can leave the company without someone properly authorised to immediately manage the company.
Section 201F of the Corporations Act 2001 does provide that, in the event of the death of a single member or director of a proprietary company, the executor or personal representative appointed to administer the deceased’s estate may appoint a new director to the company. This director has all the powers, rights and duties of the deceased director and can keep the company running until shares are transferred to beneficiaries who may then appoint new directors if they wish.
Without a Will, however, a relative has to apply to the local Supreme Court for Letters of Administration to manage the estate, which could take weeks if not months. During that period with no director, the company may be completely unable to operate.
With no-one properly authorised to make management decisions or act for the company, it may be unable to trade. Banks and other financial institutions in particular can be unwilling to accept instructions in relation to a company’s trading account if they are not satisfied there is someone properly authorised to act for it. Equally, staff and suppliers may not be able to be paid, which can quickly have a deleterious effect on the reputation and value of the company.
Creating an estate plan for a business owner
If you do not currently have a Will or estate plan, you should consider the following:
- Prepare a Will
Your Will should include information specific to your business to help determine who takes over the business. In addition to determining who receives what assets, you will also need to determine an executor – the person who manages the disbursement of your assets.
- Document Account Details
It is recommended you keep a log of important accounts, documents and information, so in the event of your death, those whom you have deemed responsible and trustworthy can access your banking and financial accounts, and any other accounts or files pertinent to your business operations. This may include emails, social media, cloud storage and document sharing. Some choose to do this openly while others prefer to keep a paper copy with their solicitor.
- Consider a Shareholder or Buy/sell Agreement
If you are a part-owner in your business and you or your co-owner suddenly pass away without a written agreement, there can be dire implications for you, the business or your estate. Shareholders agreements can provide guidance on everything from how much your share should be sold for and to whom. Though this is specifically referring to estate planning, anyone with a multi-member business should consider the benefits of this agreement.
- Determine a Power of Attorney
In your absence, business operations can come to a halt, leaving everything from payroll to bills unpaid. By trusting someone with Power of Attorney, you can avoid unnecessary disruptions during an already difficult time. By determining who will fulfil this role ahead of time, you can provide explicit instructions and save grieving family members from having to assume this responsibility.
Losing a family member is rarely easy for family and friends left behind. Ensuring you have a will or an estate plan in place, especially when you are responsible for running a business, will lessen the burden and emotional toll on them.
If you have questions about your will or estate plan, contact the Tax, Structures & Planning team at Clifford Gouldson Lawyers.