How to handle jointly owned businesses in a will

Estate planning is a crucial part of long-term financial management, especially for individuals who have ownership stakes in businesses. One of the more complex aspects arises when a business is jointly owned—whether with a spouse, family member, or business partner. Planning for such an asset in a will requires deliberate legal and financial consideration to ensure that the ownership transition is seamless, that the business continuity is protected, and that all stakeholders—including heirs—understand their rights and obligations.

Jointly owned businesses can take many forms, each carrying its own implications when it comes to inheritance and succession. Whether it’s a small family-run enterprise or a larger entity with multiple shareholders, failing to address the future of the business clearly in estate documentation can lead to confusion, disputes, and in some cases, the unnecessary dissolution of a thriving operation.

This article explores how you can appropriately handle a jointly owned business within your estate planning strategy. We’ll cover the types of joint ownership structures, explore the challenges and legal considerations involved, and provide guidance on crafting clear, legally sound provisions for jointly owned business interests within your will.

Types of Joint Business Ownership

Before considering how to manage a jointly owned business in your will, it’s important to understand the structure of your business ownership. Each type carries different legal ramifications for succession and ownership transfer.

Business ownership can generally be classified into the following structures:

1. Partnership: A partnership involves two or more individuals who share ownership of a business. Partnerships can be general or limited, with different levels of liability and management responsibility.

2. Limited Liability Partnership (LLP): In an LLP, partners have limited liabilities, meaning they are only responsible for debts up to the amount they invest. This structure is popular among professionals such as solicitors and accountants.

3. Limited Company: A limited company is a separate legal entity. Shares can be jointly owned by two or more individuals, and transfer of ownership is typically governed by the articles of association or shareholder agreements.

4. Joint Ventures: These are business arrangements where two or more parties agree to combine resources for a specific project or long-term enterprise. Ownership rights are often detailed in a joint venture agreement.

The ownership structure of your business is a key factor in determining how it will be handled upon your death. In the eyes of the law, your rights to transfer or bequeath your share will depend on the specific agreements and corporate structure in place.

Challenges of Planning for Joint Business Ownership in Wills

When it comes to incorporating a jointly owned business in your estate plans, the process is rarely straightforward. Several common challenges arise and should be proactively addressed:

1. Ownership Rights and Limitations

If you co-own a business, particularly one with a legal agreement already in place, your freedom to bequeath your share may be limited. For example, shareholders’ agreements often include clauses that give other shareholders the right of first refusal should one partner wish to sell or transfer their shares. In the case of a partner’s death, these agreements might stipulate that the shares revert to the company or existing shareholders before they can be passed onto heirs.

2. Continued Business Operation

Another concern is the continuity of business operations. If one of the joint owners dies, the surviving owners will often wish to continue business operations with minimal disruption. If the deceased co-owner intended to pass their share to a family member who lacks the skills or interest to be involved, this creates friction. It might result in a sale or buyout, or even worse, could jeopardise the stability of the company if not planned for adequately.

3. Valuation and Tax Implications

Business shares and interests are often difficult to value, particularly when the company is not publicly traded. Upon death, these assets must be valued for inheritance tax purposes. A lack of liquidity in such assets can make it difficult for heirs to settle tax liabilities. Moreover, where Business Relief does not apply or is only partially available, significant tax may become due.

4. Disputes Among Survivors and Heirs

Without a clearly defined succession and ownership structure laid out in a will, disputes can quickly arise between business partners and beneficiaries. Misaligned expectations from family members versus existing business partners can not only stall the business but also lead to expensive legal proceedings.

Crafting an Effective Strategy

To ensure your jointly owned business is properly accounted for in your estate plan, there are several core strategies and legal instruments that should be employed.

Review Ownership Agreements

The first and most essential step is to review all current ownership agreements. Whether you’re in a partnership, LLP or limited company, these legal documents outline what happens in the event of a partner’s death. Clauses might include:

– Rights of pre-emption or buy-back by surviving owners
– Valuation mechanisms for transferring ownership
– Succession plans or designated replacement partners or directors
– Restrictions on transferring ownership to non-shareholders or family members

Having clarity on what is already contractually agreed will ensure your will does not conflict with pre-existing obligations.

Use a Shareholders’ or Partnership Agreement to Plan Succession

If no such agreement exists or if your current documentation is outdated, now is the time to update or execute one. These agreements can proactively address several key issues such as:

– Who can inherit or purchase the deceased’s share
– How the share value will be determined (valuation formulas, independent assessment, etc.)
– How payment will be made (installments, use of life insurance, etc.)
– What rights are conferred onto beneficiaries, especially if they are not involved in the business

This document becomes a cornerstone of ensuring that your wishes align with business continuity objectives.

Include Business Interests Clearly in the Will

Once legal agreements have been reviewed or updated, the will must reflect your intentions clearly. You should detail:

– The interest you hold in the business
– Who you wish to inherit this interest
– How and when the transfer should take place
– Any conditions attached to this bequest

If your intention is for a particular child or spouse to inherit your share, but the current shareholder agreement prevents that, then the will alone is insufficient. Legal and contractual harmony is essential in these cases.

Establish a Buy-Sell Agreement

A buy-sell agreement is a legal tool that allows the surviving business owners to purchase the deceased partner’s share, thereby maintaining continuity and avoiding disputes with inheriting parties who may not be suited for business involvement. It also provides liquidity to the deceased’s estate, making it easier for their family to receive value from the inheritance.

In most cases, such agreements are funded by life insurance policies that are set up by the business. When a partner dies, the insurance proceeds are used by the surviving partners to buy out the deceased’s interest. The buy-sell agreement will specify:

– Who has the right or obligation to buy
– The valuation method
– The payment structure and timeline
– The designated recipients of the proceeds

This approach offers a highly efficient method for transitioning company interests following the death of a co-owner.

Consider the Role of Trusts

In some cases, placing business ownership within a trust can provide flexibility and control. For example, if you want your share of the business to eventually benefit your children, but they are currently minors or lack business experience, you might place the shares in trust until they are old enough or capable of managing the interest effectively.

Trusts can also help manage tax exposure and provide an ongoing framework for managing distributions. Professional trustees or experienced family members can advise and guide heir involvement over time.

Plan for Inheritance Tax

One of the more overlooked aspects of passing on business interests is the inheritance tax liability. Business Relief is a valuable relief that can reduce the value of a business or business asset for inheritance tax purposes by up to 100%, if certain conditions are met.

However, not all business interests qualify, and not all business configurations are eligible. For example, if the business deals mainly in investment activities such as property letting, it may not qualify. Similarly, passive shareholders who are not actively involved in the business may also face restrictions.

Proper tax planning—combined with strategies such as insurance, trusts, and lifetime gifts—can reduce the burden on your estate and ensure that the business is not disrupted by an urgent need to raise cash to pay tax.

Engaging Professionals

Given the complexity involved in managing jointly owned business assets within a will, it is imperative to involve professionals early in the process. This may include:

– An estate planning solicitor with business experience
– A corporate lawyer to review and draft agreements
– An accountant or financial adviser to handle valuations
– A tax specialist to manage inheritance tax implications

Collaborating with a multidisciplinary team ensures an integrated and well-considered approach that aligns your personal wishes with legal, operational, and financial necessities.

Communicating with Stakeholders

A comprehensive will backed by legal documentation is essential, but it’s equally important to communicate your intentions to family, business partners, and beneficiaries. Unexpected decisions can cause resentment or panic. Being transparent about your decisions—or even discussing them during your lifetime—can reduce the likelihood of disputes and help all parties prepare mentally, emotionally, and financially.

Consider hosting an annual or biennial review session with your professional advisers and relevant parties to ensure that all documentation remains current, especially as relationships, structure, and business performance evolve.

Conclusion

Incorporating a jointly owned business into your estate planning is a multifaceted task. It involves understanding complex legal structures, aligning multiple interests, mitigating tax exposure, and above all, ensuring the smooth transition of both ownership and operational control. With the appropriate legal frameworks, clear communication, and sound financial planning, you can create a legacy plan that protects your business, supports your family, and honours the relationships built over years of effort and collaboration.

Acting early and regularly reviewing your plans can safeguard not only the business you have built but the future security of those who rely on it—your co-owners, employees, and loved ones. Joint business ownership doesn’t have to complicate estate planning. With the right preparation, it can instead become a powerful asset passed on with clarity, care, and continuity.