What to do when a business owner dies
When a business owner dies, it triggers a series of crucial responsibilities. These responsibilities include notifying stakeholders, addressing financial matters, and planning for the future of the business. This guide covers who to inform after a death, and the effects of the death on the business. It also covers dealing with any business debts. We will also consider the inheritance tax implications and whether you will require Probate.
Who do I need to inform about the death?
When a business owner dies, reach out to anyone affected by their passing. This includes their employees, customers and suppliers. If the business premises are leased, you should also inform the landlord. You should let the landlord know that their tenant has died, and that you are handling the estate administration.
It is important that you treat any employees with empathy and understanding during this undoubtedly difficult and confusing time. You should be transparent in letting employees know about any plans for the future of the business. Provide employees with details of anyone whey can contact for an update as matters progress.
When you deal with the business owner’s finances, check if any bank accounts are in the business name. You should inform these banks of the death of their customer.
If the business had dealings with any accountants, you will also need to contact them. You may want to ask the accountants to deal with anything required by HMRC following the death. This may include finalising any tax or employee matters.
If you used the Tell Us Once service when you registered the death, you will already have notified HMRC.
A sole trader is someone who owns and runs a business on their own, with no employees or business partners. If the person who died was a sole trader, then anything owned by the business will be part of their estate.
If there is a will, those inheriting the business are able to decide what to do with it. They may wish to continue trading and become a director of the business themselves. Alternatively, they may wish to close the business and receive any assets held by it.
You can find further guidance on what to do when a sole trader dies on the Gov.uk website here: Closing a limited company
A limited company can either be a private or a public company. A private company is likely to be small in terms of how many employees it has, and independently run. By contrast, a public limited company is likely to be a large well-known company with many employees.
Owning shares in a limited company limits the liability of each shareholder. The company, and not the shareholder, assumes responsibility for the business assets and debts.
Sometimes, a person will leave their shares in a limited company to someone in their will. You should still check if any other documents override these wishes. Companies House will hold copies of any memorandum and articles of association. These documents may set out what happens to a person’s share in a limited company after they die. You can check what documents are held for the company here: Find and update company information
Partnerships arise where a person owns and manages a business with others. You will need to check whether there is a partnership agreement in place. Partnership agreements are usually made when a business is originally set up. A partnership agreement may set out what happens to a partner’s share after they die. This will usually override any wishes in the will.
If you cannot find a partnership agreement, the partnership could come to an end automatically under the Partnership Act 1890. If you are unsure what will happen to the partnership, you should speak with a lawyer specialising in this area. You can find a suitable solicitor using the Law Society Find a Solicitor service.
Limited Liability Partnership
Like other partnerships, check if there is a partnership agreement in place. This may contain terms which override any wishes in the will. You should also check if there is any members agreement in place. A members agreement will explain what happens with the partnership after one of the partners dies.
Do I need to pay inheritance tax on business assets?
Tax relief on business assets is a complex area of law. If you are claiming inheritance tax relief, you will need to complete the relevant tax relief form. It is important that you complete this form correctly before you send it to HMRC. You should seek legal advice if you are looking to claim tax relief on business assets.
Business Relief (BR) is a relief from inheritance tax. This type of relief reduces the value of the business assets on which you will pay inheritance tax.
Firstly, you should arrange for a valuation of the business at the date of death by a specialist valuer. Once you have this valuation, you will need to complete inheritance tax forms and send these to HMRC. Details of which forms you will need to complete, and helpful guidance, can be found here: Business relief for inheritance tax
This guidance will explain to you which assets you can claim relief on, and how much relief you can claim.
Do I need to apply for Probate when a business owner dies?
Depending on what assets are owned by the business, you may need to apply for Probate to deal with them. For more information, check out our guide to if you will need Probate here: What is Probate and Do I Need it?
What happens to the business debts?
Whether you need to pay business debts from the estate depends on the type of business the person owned.
If they were a sole trader, their business debts will need to be paid by the estate.
For all other types of business, you should seek legal advice on who is responsible for paying the debts.