As business owners, we often use a new year to plan, make decisions and build on the successes of previous years. Considering succession is an integral part of these plans and as part of that, we encourage you to review your company’s Articles of Association and any shareholders’ agreement that you have.
Many business owners see a shareholder agreement as an unnecessary expense, however, such an agreement can be invaluable if shareholders fall out or if someone dies or becomes unable to work. We recommend that shareholders think of the cost of putting it in place as like an insurance premium – you hope you will never need it but have the comfort that it is there if you ever do.
Alongside this, you should think about whether you need shareholder protection insurance to provide cash for your family if you die by allowing the other shareholders to buy your shares out.
Its also important to think about what will happen if you become ill or lose mental capacity. Do you need to get a lasting power of attorney in place to allow the right person to step in and make decisions which will allow the company to continue? Who will vote on your shares to protect yours and your family’s interests?
Paperwork might be boring or even daunting when the more interesting planning discussions get going and thinking about the worst that can happen is not pleasant. However, ignore it at your peril.
Planning for the inevitable is so important; what does happen to the control and ownership of your business should you or a fellow owner pass away and how do you make sure there will be cash available to ensure it all works the way you want it to?
It’s not just about who will own the business; consider how the business will continue to be run, operate, meet customer demands, pay the salaries and bills. If you haven’t got these plans in place, the business will fall at the first hurdle and will start to lose value through lost customers, lost employees and a lack of strategic direction. If no-one has the power to make decisions and authorise bank transactions, for example, how will your company survive?
Where there is a sole director who dies, the company will be in breach of its statutory requirement to have at least one natural director at all times. Where a sole shareholder dies, the shares can automatically pass to the deceased’s executors and voting rights are suspended until the estate is settled and shares are transferred. If you are a sole director and shareholder, you should make sure you have appropriate plans in place to prevent these problems.
For advice on business succession, shareholder protection insurance or lasting powers of attorney, please get in touch today with Jane Parry (firstname.lastname@example.org) or Antony Keen (email@example.com).