What happens to your business after you die is not something that you may want to think about right now, but forward planning can save serious headaches for those left behind should you pass away unexpectedly.
The structure of your business can have implications not only on what happens to your business if you die, but how your loved ones or business partners can access funds tied up in your business bank account.
How your business bank account is dealt with after your death depends upon the type of business that you own:
Sole trader
As a sole trader, when you die, your business finances and your personal finances are seen as the same. This means that any debts that your business had at the time of your death, are legally part of your personal debts. Likewise, any net profits from your business will make up part of your personal estate.
Your business will form part of your estate once you die and will be dealt with as part of the terms left in your will. Alternatively, if you don’t have a will, the current intestate rules will apply. Assets from your estate can be sold to clear any debts, loans, mortgages or unsettled invoices.
Once your business bank account has been notified of your death by your estate administrator, the details on your bank account will be updated. It’s worth checking the policy of your business bank account, as each may vary slightly in their approach. Mostly, however, you can expect the following:
- Any debit cards that you had will be automatically cancelled. Standing orders and direct debit payments that are due to come out of your business bank account will all be cancelled. So too will any online banking or telephone banking payments.
- Payments to credit cards continue to be accepted, because they could have been made by the deceased.
Partnerships
If a business partner dies, the partnership is automatically dissolved unless your business has a Deed of Partnership.
A Deed of Partnership is a legal document that usually contains details such as the contribution of each partner, and how profits will be shared. This document may also give details about what happens in the event of a death of one of the business partners.
If you have a Deed of Partnership, your business partner will need to show this to your bank as soon as possible after your death so that they can carry on trading. If not, the only payments allowed to continue from your business bank account will be to pay existing debts, and for those sustained in dissolving the partnership.
A business partnership is complicated. There are many factors such as ownership, value, profits and liability which make it difficult to deal with, especially when one partner dies. We recommend taking the time to seek legal advice with your business partner to get your affairs in order upfront with a Deed of Partnership document.
Limited liability partnership (LLP)
A limited liability partnership is a separate legal entity. This means that the partners are only liable for the amount of money invested, along with any personal guarantees. Therefore, a death of a partner should not usually affect the ability of the business to continue trading.
Limited company
As a limited company, the liability of the business owner is limited, which means that unlike a sole trader or partnership, the debts or profits of the business are dealt with separately to the owner and their personal estate.
If you are the sole director of a limited company and you die, your business bank account will be frozen once the bank has been notified by your executor. All payments and transactions will be stopped.
To gain access to your bank account, the executor may need to apply for a Grant of Probate, depending on the value of your estate. This document legally allows the executor to deal with all your assets, including your money and belongings.
If you do not have a will, your estate is passed on according to the intestate rules. In such cases, the appointed estate administrator will need to apply for a Grant of Letters of Administration.
A Grant of any type is renowned for being a lengthy process, taking on average between three and six months to complete, but sometimes longer.
If the company has more than one director, then it can still operate as usual. The remaining directors will divide the deceased shareholder’s responsibilities between them.
If the company had just one director but other shareholders, then the remaining shareholders can hold a meeting to appoint a new company director.
In summary
Whatever the nature or structure of your business, we recommend taking the time to seek advice with your bank and solicitor. It is wise to arrange for legal documents to be in place showing what will happen to your company and how funds will be accessed should you or a business partner die.
