Pitfalls of Being an Executor to a Business Owner
How to Avoid Being Personally Liable as an Executor to a Business Owner
Image (Mr Aaron Spencer of Furley Page) and Text reproduced with kind permission of Charlie Vavasour of Quantum PR who retains full copyright)
A leading Private Client lawyer has warned executors about the challenges and complexities of administering the estate of a business owner, including the risk of executors becoming personally liable.
With over 550,000 deaths registered in the UK in 2024, and 5.5 million businesses registered in the same year (3.1 million of which are sole proprietorships) there is a good chance of being an executor of someone who owned a business.
Aaron Spencer, Head of Private Client at Furley Page, said: "If you are an executor to someone who owned a business, it is vital to understand what can and cannot be done to ensure compliance with legal requirements and to protect the business's value after
the owner has died.
"Administering an estate is always a challenging process, but when a business is involved, the complexities multiply, as executors try to navigate business operations, tax liabilities, and succession planning. Executors can become personally liable if thereis any mismanagement identified."
When a business owner dies, their share of the business ordinarily forms part of their estate and must be administered in accordance with their will or the rules of intestacy. The exact structure of the business will have an impact on what happens next.
If the business is a sole proprietorship, a sole trader's business ceases to exist upon death and the estate must decide whether to sell the assets or wind it up. If continuity is desired, new ownership arrangements must be made. It may cease trading immediately
unless arrangements are in place for its continuation.
Where the deceased was in a partnership or limited liability partnership (LLP), the partnership agreement will dictate what happens next. Some agreements allow for business continuity, while others may require dissolution. Whereas with a limited company it
has a separate legal identity and can continue operating. The deceased's shares in the company form part of their estate and will be passed on according to their will or intestacy rules.
As a priority, executors must assess the business's financial position carefully to determine its ongoing viability. In many cases, a business can continue to operate during probate, but this depends on the business structure and the authority given to executors
or surviving partners.
Aaron Spencer continued: "To enable the business to continue operating, executors may need to secure clear authority to run the business either as provided in the will or from the beneficiaries, as well as take responsibility of managing operational aspects,
such as overseeing payroll, contracts, and supplier relationships.
"Executors will also be expected to address all tax implications and ensure compliance with relevant business legislation and tax requirements. Lapses in this area could result in penalties or additional liabilities, or even creditors holding executors personally
liable for any mismanagement.
"Being asked to be the executor of a will can feel like a privilege, but it is also a huge responsibility. To execute that responsibility fully executors are advised to engage professional advisors such as accountants and legal professionals to maintain the
business's value until probate is granted and ownership is transferred. This not only helps secure the estate's interests but also reduces the risk of personal liability by ensuring all actions are legally sound."
In situations where the deceased's wishes or its financial circumstances dictate that the business should be wound up, the executors will need to settle outstanding debts and liabilities; inform employees and comply with employment law obligations, including
redundancy rights; liquidate assets and distribute proceeds to beneficiaries; and deregister the business with appropriate authorities and regulatory bodies.
If you would like to know more about the complexities of being an executor, please do not hesitate to contact Aaron Spencer or a member of the Private Client team on 01227 763939.
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