I am a member of a business that makes geysers. We are three partners in the CC and the business is worth about R16 million. What happens to my share if I die? I have 49% of the shares.
Your share of the business is an asset in your estate and as such would go to whomever you have bequeathed your estate to in your Will.
However, there are a number of issues that you need to consider:
- The value of your share of the business will form part of the amount in your estate that is taxable, or subject to estate duty. If you have not made provision for the tax on the value of your shareholding, this could affect how much of the rest of your estate is available to your beneficiaries. In a worst case scenario, and without taking the details of your estate plan into account, this could means as much as R1 568 000 estate duty.
- Would the person who is inheriting your estate want to become a shareholder in the business? Would your partners be happy if for example your wife or your children now takes over your shareholding? It would be a good idea to discuss this with the affected parties and if the answer to these questions is no, you might want to consider other options.
- Would your partners be interested in buying your share in the event of death? If this is the case, you might want to consider setting up a buy-and-sell agreement whereby your co-shareholders will buy your share from your estate at a predetermined price. This would ensure a lot more certainty in finalising your estate.
- If you are married in community of property (not with an ante-nuptial contract), your wife is actually half-owner of your share of the business. Although this means that your estate will only be taxed on half of the value of your shareholding, it could also complicate matters with regard to the re-distribution of your shareholding.
- Is your business’s financial reporting in order? This will be important to for example determine the value of your portion of the shareholding. If the executor of your estate has to involve external auditors to determine the value of the business, in order to determine the value of your shareholding, this could add to the cost of the administration of your estate and delay finalising the estate.
As your shareholding in a business is totally interconnected with your personal estate, it is always a good idea to consult with a certified financial planner that has the expertise to advise on both.