What Happens to a Business or Shares in an Estate?

When you have taken on the responsibility for administering someone's estate, you will be responsible for managing all the assets that make up the estate. This includes all the obvious things such as money in savings accounts, jewellery, vehicles, property and land. It also includes some less obvious assets, such as business interests.

What this looks like in practice can vary hugely. For example, 'business interests' could refer to the outright ownership of a business. Alternatively it could be that the person who has died owned shares in a business or held a share in a partnership.

The personal representatives of estates like these will need to take the necessary steps to ensure these business interests are dealt with correctly.

Assessing business interests

If you've read any of our other blog posts and help guides around the subject of probate, you'll know that the first stage in the process is assessing the estate. This is no different for an estate that includes business interests.

At this stage, you'll want to make sure you are gathering as much information about the business interests as possible.

This could include:

• Share certificates.
• Documentation relating to partnership agreements.
• Documentation relating to shareholders' agreements.
• Share valuations.
• Business accounts.
• Documentation of business assets.

One of the first priorities at this stage should be to determine exactly what type of business interests you are dealing with. For example, the legal position of the estate will vary depending on factors such as whether:

• The business was fully owned by the person who has died.
• They held shares in the business rather than owning it outright.
• The business was a traditional partnership or a limited liability partnership.
• The business was run as a sole trader business or as a registered limited company.

Depending on what you discover about the ownership of the business, the next stage may be to assess all its assets and liabilities as part of the process of assessing the estate. Alternatively, you may just need to seek an up-to-date valuation of any shares that are owned in the business.

What will happen to the business in the meantime?

The question of what will happen to the business during the process of winding up the estate will depend on a wide range of factors. Primarily, this is likely to be determined on how involved the person who has died was with the business on a day-to-day basis.

If the person who has died owned shares in the business but was not particularly involved in the everyday running of the business, then the business may well be able to continue on as before.

Alternatively, if the person was a sole trader, the director of a limited company or an active partner in a business, this may be more difficult. The personal representatives will need to liaise with anyone else who is involved and decide whether the business can continue to trade, perhaps under the supervision of a trusted member of staff or the personal representatives themselves.

Depending on the legal ownership of the business, any associated bank accounts might have been automatically frozen due to the death. In these situations, it may be necessary to make alternative financial arrangements to cover this period.

Reviewing shareholders' and partnership agreements

If the shareholders' or partnership agreements have been carefully put together, they should set out exactly what would happen in the event of the death of a shareholder or partner.

Often, this will mean that there is an automatic mechanism in place for managing what happens next. Common choices here can be:

• Surviving partners/shareholders will buy out the interests of the partner/shareholder who has died.
• Shares will pass directly to the beneficiaries of the person who has died.
• The partnership or business will automatically be dissolved on the death of a shareholder/partner, and any business assets will need to be sold and the proceeds split between the estate and the surviving partners/shareholders.

If the shareholders' or partnership agreement have instructions for what should happen in the event of a death, then these instructions will need to be followed.

In the event that the agreements do not detail what should happen in this scenario, or if the instructions in the agreements contradict what is written in the Will, then you're likely to benefit from specialist expertise. In these instances, we'd recommend seeking advice from a probate solicitor.

Selling, passing on or winding up business interests

Generally speaking, there will be three options for dealing with business interests on behalf of an estate:

1. Selling up: whether that means selling the actual business or any shares that are held in the business. You may need to offer a right of first refusal to other parties involved in the business, or you may be able to go straight to seeking a buyer on the open market.
2. Passing on: transferring ownership of either the business as a whole or the shares to a beneficiary.
3. Winding up the business: this may be the only option if the business in question is unable to continue without the person who has died. The process is likely to be focused on settling the accounts and selling any assets that belonged to the business.

As mentioned above, which of these options is the right one will often depend on the contents of the partnership or shareholders' agreements.

Will there be tax considerations?

As with any estate, the personal representatives will need to carefully assess any potential tax liabilities, whether this is in terms of inheritance tax or capital gains tax.

Some estates in this category may benefit from Business Property Relief (BPR). Until recently, qualifying business property could attract 100% relief from inheritance tax with no upper limit. A cap has now been introduced: an estate's qualifying business and agricultural assets receive 100% relief up to a combined £2.5 million, with 50% relief on anything above that. You can read about how the relief works in more detail here.

Where can you seek support?

Administering an estate is a big responsibility, especially if that estate encompasses a business or shares in a business. It can involve some very technical legal work, and you may feel that you need some specialist advice to help get it all right.

Our team are always ready to hear from personal representatives who are dealing with situations like these. We're set up to offer as much or as little support as you need to successfully navigate the probate process.

Frequently asked questions

Are personal representatives responsible for any businesses owned by an estate?

When you take on the role of personal representative for someone who has died, you are taking on the responsibility for that person's whole estate. That will include any business interests that person had, whether that's a business they owned and ran outright, or whether they owned shares in a business. The personal representative will need to deal with business assets just as they deal with any other kind of asset.

What happens to any business interests owned by an estate?

If an estate encompasses business interests, the personal representatives of that estate will need to manage the winding up of those interests in the same way they would any other type of asset. Depending on the kind of business interests in question, there may well be specific rules on how they need to be dealt with. These tend to be set out in a shareholders' agreement or a partnership agreement.

Do your business interests pass to your beneficiaries when you die?

What would happen to your business interests at the time of your death would depend on a range of factors. Most crucially: what you have written in your Will and what has been recorded in any shareholders' or partnership agreements that are in place in the business in question. Often, business interests can pass to your beneficiaries, but in other cases they may need to be sold or the business dissolved.