SOLIHULL business owners have been urged to plan ahead on a personal basis as well as just for their business operations.
The call has come from James Hall, a specialist in long-term tax and estate planning at Solihull-based private client lawyers Meridian Private Client LLP
“The question of long-term planning for what can be valuable stakes in privately owned businesses is often neglected,” he said. “The costs of this neglect can be significant, sometimes leading to the break-up of businesses and little return for the entrepreneurs´ families in the years ahead.”
Mr Hall says that there are various situations where these problems can arise but he highlights one where two business people working together own a business that they founded a few years before.
“Often, they have no succession plans and no agreements where one will buy the other out in stated circumstances” said Mr Hall.
“Unless there has been the right kind of planning covering this aspect and backed by insurance policies to provide cash for the deal, there are real problems. In such a case, on the passing of one partner or shareholder, Eric, his stake passes to his widow while the other stakeholder Ernie ends up trying to run the business with her agreement or support.
“Given the emotional turmoil, and the fact that Eric´s widow knows nothing of the business, this can be challenging to say the least. Eric´s widow has been passed a major asset, but a share of a business is not cash or income producing investments, which is probably what the widow and Eric´s family needs most.
“If these two entrepreneurs had taken advice at the right time, planning would have made sure that, on Eric´s passing, the business would have ended up in Ernie´s hands, while Eric´s widow and family would have benefited from the value of his stake.”