Running your own business takes drive, resilience and a willingness to juggle countless tasks at once. Amid the hustle of growth and profitability, however, many small business owners overlook something vital – what happens to the business if they’re no longer around or able to run it?
In this article, we explore why every small business owner in Scotland should have a clear plan in place to prepare for death, illness or incapacity, and how the correct legal documents can protect your legacy.
Why succession planning can’t wait
While some entrepreneurs build their businesses with the aim of selling, many others see them as long-term ventures or family legacies. If you’re in the latter camp, it’s crucial to have a strategy in place for what happens to the business when you’re no longer able to run it.
That could be due to retirement, or it could be something unexpected. Illness, incapacity or death can all throw a business into uncertainty unless you’ve planned ahead.
The risks of dying without a Will
If you pass away without a Will (known as dying intestate), the process of appointing an executor and handling your estate becomes much more complex. It can take weeks—or even longer if there are disputes—and that delay could leave your business in limbo, unable to trade or access funds.
With a valid Will in place, you can:
- Appoint trusted executors
- Leave the business to specific individuals
- Ensure continuity or plan for an orderly sale
You can also balance business succession with personal wishes—for example, by giving the business to a child who works in it, while making other arrangements for those who don’t.
Planning for incapacity with a Power of Attorney
Death isn’t the only risk. Many people assume incapacity only happens in old age, but it can be caused by accidents, illness or mental health conditions at any time.
If you become unable to make decisions, your business could stall unless someone is legally authorised to act on your behalf.
That’s where a Continuing (Financial) Power of Attorney comes in. It allows a trusted person—your attorney—to make decisions relating to your business and finances if you lose capacity, whether temporarily or permanently.
Without it, family or business partners may face lengthy and expensive court applications just to keep things running.
Wills, agreements and company documents must work together
If your business is a limited company, you may have a Shareholders’ Agreement in place covering what happens when a shareholder dies or wishes to leave.
Your Will mustn’t conflict with any such agreement. For example, if the Shareholders’ Agreement states that shares must be sold back to the company on death, your Will shouldn’t try to leave them to someone else. Conflicts like this can delay the administration of your estate and destabilise the business.
Business Relief and inheritance tax savings
Business owners should also consider Business Relief when planning their estate. This valuable relief can reduce or even eliminate Inheritance Tax (IHT) due on business assets, provided qualifying conditions are met.
You may be eligible for:
- 100% relief on unlisted shares or an interest in a trading business
- 50% relief on certain assets like land, buildings or machinery used by the business
You can also potentially gift business assets during your lifetime and still secure IHT relief, provided the business continues to operate and meets the qualifying rules.
Factoring in Business Relief as part of your estate planning could make a significant difference to what your family inherits and how your business continues after your death.
Make a plan that protects your business and your family
At maloco mowat parker, we work with business owners throughout Fife and beyond to put clear, legally robust plans in place for the future. Whether you need a Will, a Power of Attorney, or advice on succession or Business Relief, our expert team is here to help.
Get in touch with us today to start the conversation about protecting your business and your legacy.