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Victoria Grogan, counsel at Carey Olsen, takes a look at different forms of company structure and outlines the steps people should take to safeguard their business’ future after their death
WHAT happens to our business assets on death?
Estate planning and putting your personal affairs in order is incredibly important. For someone who owns and runs their own business, or who is part of a company or partnership, consideration should also be given to the business and its assets as these can sometimes get overlooked.
Jersey succession law does not distinguish between business assets and personal assets so, upon a person’s death, any business assets will also form part of their personal estate.
Sole trader
Thought should be given to what will happen to the business on the death of the sole trader. If the business is made up of only the sole trader and there are no employees, then the business comes to an end.
But what if the sole trader business has employees and customers who rely on the business? The beneficiaries and executors often expect that the business will continue to run as normal if there are employees, until such time as it is handed over to the beneficiaries. This is not the case and, practically, it may be impossible to continue running the business.
All bank accounts, including the business accounts, will be frozen once the banks are made aware of the death of the sole trader. This means that funds can’t be paid in or out of the business accounts. For example, the bank will not release money to pay employees’ wages or to pay traders.
This can cause all sorts of consequences. Not only does it mean that employees may not receive their salary and so the business will come to a halt, but also creditors will not be paid, and this is detrimental to the business, its employees and customers. The personal representatives of the deceased will not be able to operate the bank accounts until they have attained the Jersey Grant of Representation, and this can take time.
Sole traders should therefore carefully review their business to ensure that it can continue to operate after their death, particularly if there are employees, and to whom they wish to leave this asset. It could either form part of the residue of the estate or be left as a specific gift to a nominated beneficiary.
Partnership
When a partnership is formed, there is usually a partnership agreement in place which addresses what happens to your share of the business when you die, and this will override any wishes stated in your will.
If there is no agreement in place, your share of the business will become part of your estate and will pass to your beneficiaries. It will then be up to the beneficiaries to decide what to do with it.
Limited company
A limited company is a separate legal entity, so the death of a director or shareholder is usually covered by the company’s articles of association. There may also be a shareholder’s agreement in place which can cover what happens to your shares when you die. It is important that these documents do not conflict with your will in terms of how your business assets are inherited.
It is worth noting that a director is responsible for running the business while a shareholder owns a share of the business personally. If you are a shareholder, these shares will form part of your estate.
Business Lasting Power of Attorney
A business LPA should be a key part of your succession planning if you own and operate a business and are considering the wider impact of any potential incapacity during your working years.
It is possible and advisable to make two LPAs for property and affairs – one covering your business assets and interests and another to cover your personal financial matters.
You can appoint different people as your attorney in each if you wish. For example, your spouse/partner might be suitable to make day-to-day decisions about your finances but may not be actively involved or interested in running your business.
Putting in place a business LPA enables you to appoint someone who can make decisions on your behalf in respect of your business if you lose capacity to do so yourself, such as paying suppliers, signing contracts, accessing the business bank account and making sure that the business can continue to run.
Be prepared
A detailed discussion about what will happen to your business assets on death, or on loss of capacity, should take place as part of your succession planning. This will alleviate any uncertainties and means that the succession of your business will happen as you envisage.
About Victoria
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Victoria is counsel in Carey Olsen’s Jersey trusts and private wealth team.
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She has 18 years’ experience advising on wills, probate, capacity and estate planning matters.
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Victoria first joined Carey Olsen in 2006 where she worked for 11 years. She recently rejoined after a seven-year hiatus when she worked at two other offshore law firms.
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With Victoria’s appointment, the Carey Olsen Jersey wills and probate team has three Jersey notary publics.
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The team is led by Elizabeth Le Guillou, who was promoted to counsel as of July 2024.
