Very few people like talking about death; particularly their own. Most shareholders of private companies expect to sell their businesses long before death. I think it’s for this reason that very few owner managers take the time to consider what will happen to their shares if they die.
It’s not an easy topic to consider but advance planning ensures that, if the unexpected happens, the beneficiaries are looked after and the remaining directors can focus on the business.
Most of my new clients believe their shares will go to their family under their will (or via intestacy rules) but this may neither be correct, nor desirable.
If such is the intention, the articles of association of the Company need to allow it. The terms of the articles may trump the terms of the will. Often the articles provide that the surviving shareholders must have a right to buy the shares first. But what will the price be? Could they afford them?
If you have a co-owner, will they want your spouse or children having an interest in the business? Would you want theirs to? Would your family members want to be shareholders or would they prefer the shares to be sold so they can realise the value?
Every situation is different but some of the common solutions are:
Conflicting provisions within the key documents is likely to cause significant delay and expense and, in the worst case, will mean your intentions cannot be carried out. The result is stress not only for the individuals but also for the company.
When an owner manager dies, the remaining directors and managers need to be more focussed than ever on continuing the business and protecting its value. They cannot do that if they are distracted by protracted and expensive disputes. There are relatively simple steps which can be taken to avoid such issues.
If you need to review the succession planning within your business please contact me.