The probate process is rarely straightforward, but matters can become significantly more complex when the deceased owned or had an interest in a business. At Blackstone Solicitors, we regularly assist clients across England and Wales who find themselves tasked with administering an estate that includes a company, partnership, or sole trader operation. This article outlines what happens during the probate process when a business is involved and explains the steps executors or administrators must take to ensure the estate is dealt with correctly.
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Understanding Probate
Probate is the legal process of administering a deceased person’s estate. It includes:
- Proving the validity of the Will (if there is one)
- Identifying and valuing the deceased’s assets and liabilities
- Applying for a Grant of Probate or Letters of Administration
- Paying any debts, taxes, and expenses
- Distributing the estate to beneficiaries in accordance with the Will or intestacy rules
When a business is involved, the process can be more involved. The value and future of the business must be assessed, decisions must be made about its continuation, and legal and financial obligations must be met.
Types of Business Structures
The steps taken during probate will depend in part on the type of business involved. The most common structures are:
- Sole Trader
A sole trader business is not a separate legal entity. The business and the individual are one and the same. When the sole trader dies, the business does not continue automatically — it forms part of the deceased’s estate and must be wound up or transferred by the executor or administrator.
- Partnership
In a partnership, the terms of the partnership agreement will be key in determining what happens to a deceased partner’s interest. Some agreements allow for automatic continuation, while others may require dissolution or redistribution of shares.
- Limited Company
A limited company is a separate legal entity from its owner(s). The deceased may own shares in the company, and these shares will pass under the terms of their Will or the rules of intestacy. The day-to-day operations of the company can often continue under the control of other directors or shareholders.
Initial Steps for Executors
When administering an estate that includes a business, the executor or administrator must first:
- Identify the Nature of the Business: Determine whether the deceased was a sole trader, partner, or shareholder in a limited company.
- Locate the Business Documents: Gather partnership agreements, articles of association, shareholder agreements, business accounts, insurance policies, contracts, and licences.
- Notify Relevant Parties: Inform HMRC, Companies House (if applicable), employees, clients, suppliers, and business partners of the death.
- Secure the Business: Take immediate steps to safeguard assets, intellectual property, premises, and data. This might include securing buildings, passwords, or bank accounts.
Valuing the Business
One of the most important tasks is to value the business accurately. This is essential for:
- Calculating inheritance tax
- Determining the overall value of the estate
- Assessing whether the business can or should continue
A professional business valuation may be required. The valuation will consider:
- Tangible assets (equipment, property, stock)
- Intangible assets (goodwill, brand reputation)
- Outstanding debts
- Future earning potential
- Market conditions
The valuation must be realistic and capable of withstanding scrutiny by HMRC.
Inheritance Tax and Business Relief
Where a business or business interest is left in a Will, the estate may benefit from Business Property Relief (BPR), which can reduce the amount of inheritance tax payable.
BPR can apply at a rate of 100% or 50% depending on the circumstances and the type of interest held. In general, relief at 100% may be available on:
- A business or interest in a business
- Shares in an unlisted company
Relief at 50% may be available on:
- Shares in a quoted company where the deceased had control
- Land, buildings, or machinery used in the business
To qualify, the deceased must have owned the business or shares for at least two years before death.
It is important to note that BPR is not available for businesses mainly involved in investment activities, such as property letting or securities trading. Professional advice is essential to determine eligibility.
Managing the Business During Probate
Whether or not the business can continue operating during the probate process depends on several factors:
- The legal structure of the business
- The terms of the deceased’s Will or partnership/shareholder agreement
- The readiness of surviving partners, shareholders, or managers to take over
- Sole Trader
If the deceased was a sole trader, the business effectively ceases on death unless a successor is named and the business is sold or transferred promptly. The executor must:
- Wind up contracts and trading activities
- Settle debts and claims
- Collect debts owed to the business
- Arrange for the sale or transfer of business assets
In some cases, the business may be sold as a going concern if there is value in its goodwill or brand.
- Partnership
If the deceased was in a partnership, the terms of the partnership agreement are crucial. Common clauses include:
- Automatic dissolution of the partnership
- Right of remaining partners to purchase the deceased’s share
- Pre-determined valuation methods for the partner’s interest
If there is no formal agreement, the Partnership Act 1890 applies, which may lead to automatic dissolution.
- Limited Company
When a limited company is involved, the deceased’s role must be assessed:
- As a shareholder: Their shares pass to beneficiaries under the Will or intestacy rules. The articles of association or a shareholders’ agreement may give existing shareholders the right of first refusal or impose restrictions on share transfers.
- As a director: The company can usually continue operating if there are other directors. If not, it may be necessary to appoint a new director through the company’s articles or via court if needed.
In all cases, the executor must work closely with company directors and legal advisers to ensure continuity or orderly winding up.
Employment and Staff Considerations
If the business employed staff, there are obligations relating to employment law and continuity. Executors must consider:
- Payment of wages and outstanding holiday
- Statutory redundancy payments if the business is closed
- TUPE regulations if the business is transferred to new ownership
- Notifying HMRC and pension providers
Failure to handle staff issues properly can result in legal claims against the estate, so it is crucial to seek specialist advice.
Selling the Business or Business Interests
In some cases, the executor may decide (or be required) to sell the business or the deceased’s share in it. This could be to:
- Pay inheritance tax or other debts
- Realise value for beneficiaries
- Comply with the Will or partnership agreement
The sale must be handled professionally, ensuring full disclosure and compliance with legal requirements. Timing, valuation, and marketing all play a role in achieving the best outcome.
Common Challenges and Disputes
Managing a business during probate can lead to disputes, particularly if:
- Family members disagree over the future of the business
- Beneficiaries feel excluded or believe they have a rightful share
- Valuations are contested
- There is no Will or formal agreement in place
In such cases, mediation or court proceedings may be required. Blackstone Solicitors offers expert advice on probate disputes and can help resolve matters efficiently and fairly.
Final Thoughts
Dealing with a business during the probate process introduces a host of additional responsibilities and complexities. Executors must balance their duties to the estate with the legal and financial demands of running, winding up, or transferring a business interest.
At Blackstone Solicitors, we provide clear, practical advice to executors, administrators, and beneficiaries facing this challenging situation.
If you are involved in administering an estate that includes a business, contact Blackstone Solicitors for expert legal support across England and Wales.
To read more about our services, please visit:
https://blackstonesolicitorsltd.co.uk/services-for-you/probate/
How to Contact Our Wills and Probate Solicitors
It is important for you to be well informed about the issues and possible implications of probate. However, expert legal support is crucial in terms of ensuring your wishes are met as you would want them to be.
To speak to our Wills and Probate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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