The majority of people will ensure that they have a Will to look after their personal finance but what about their business? The death of a shareholder and director, especially in a small/medium company can have a major impact on the business if they have not planned for such an event.
It is also not potentially disastrous for your business but also for the deceased shareholder’s beneficiaries. The company is under no obligation to look after them and the remaining shareholders may not have any funds available to buy their shares.
This is where a Company Will (aka Cross-Option Agreement) provides peace of mind for both the surviving shareholders and your beneficiaries. A Company Will provides that on a shareholders death or critical illness the remaining shareholders will have the option to buy his shares and that on his death his personal representatives have the option to sell the deceased’s shares to the surviving shareholders.
To enable the surviving shareholders to do this each shareholder takes out an assurance policy under which any amount which becomes payable under the policy will be held in trust by the remaining shareholders to pay for the shares under the options. It is important that it is an option and not an obligation to buy to ensure that they do not fall foul of current tax legislation.
Not convinced you need one?
If you have drawn up a Will to deal with your business shares and it has not taken into account the Company Articles then there is a risk that your wishes cannot be followed.
A provision in a valid and binding shareholders agreement to which the testator is a party will always take precedence over a conflicting provision in the testator’s Will because the agreement binds the personal representatives of the deceased after the deceased’s death.
If you want to know more about how to protect your business please contact Nick Richardson.