If a farming business, whether a partnership or company structure, has a partner or shareholder and director who dies, serious difficulties can arise for the business. The individual’s Will and the partnership agreement, shareholder agreement and/or company’s articles of association must be checked to ensure that they provide for what should happen next, that there are no conflicts between the documents and ensure that the business can continue to run smoothly.
It is vital that the partners or shareholders and directors have a valid and up to date Will. Individuals often leave family members company shares in their Wills; however, the recipients may not have the relevant skills involved or may simply not want to be involved. In which case, it may be preferred to provide for family members to receive cash instead of shares, and a mechanism can be included within the governing documents for the business, and the Wills, to ensure this is done as simply and tax efficiently as possible.
Where there is no valid Will, there is a lengthy process which can negatively affect a business because there is no one to authorise decisions to move the business forward. For instance, for a company a Grant of Probate or Letters of Administration would be needed to allow the deceased’s personal representatives to be listed on the company’s register, followed by a resolution to appoint a new director. An alternative way to make the process much smoother and quicker is to appoint another director now, to alleviate this pressure on the business resulting from having a sole shareholder and director.