What happens to my business if I or my business partner dies?
The death of a shareholder can have a massive impact on a business, especially small to medium sized businesses where shareholders are often directors and have a huge influence over how the business works.
Your Shareholder Agreement or Articles of Association may make provision for what happens when a shareholder dies or is no longer able to act, but many do not have such arrangements in place and therefore leave themselves open to complications later on. If a shareholder dies with no planning in place, often his shares are inherited by those under his will. This can cause problems for the remaining shareholders, who now have someone they never anticipated owning the business with them, as well as for the beneficiaries, who may not have the necessary expertise, time or skill to cope with running a business.
A suitably drafted cross option agreement can allow for such situations and enables the remaining shareholders to purchase the shares at a price which is fair and appropriate for the beneficiaries. In addition, if drafted properly, a cross option agreement can maintain any Business Property Relief (BPR) and help to pass the deceased’s estate in a tax efficient way.
Cross option agreements are not only for companies but can also be extended to partnerships meaning that even partners in a business can make use of BPR, whilst still allowing the most appropriate people to continue running the business without any interference.
For advice on your Shareholder Agreements, Articles of Association and general planning for the future of your business, contact us.
Rebecca McCarthy is a paralegal in the Private Client team at Barker Gotelee.