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Your company: planning for the future

Planning lies at the heart of any successful company.  You plan for growth and expansion, plan for recruitment and you plan for the Holy Grail of a thriving business - profits.

Planning can also help you protect your interests in your company should something unexpected happen – and it frequently does.

For example, have all the shareholders updated their wills to make it plain what will happen to their shares should they die? It’s not the most pleasant of tasks but is easy to do and could save you huge problems in the future.

If wills haven’t been updated or made, then it is likely your shares will go to your next of kin.  This may not be in the best interests of your company, or other shareholders.

Also, many small companies are started by partners with a 50/50 split of the shares (a quasi-partnership) and in the event of a death, if there is nothing in writing, a surviving spouse is often entitled to take over one half of the quasi- partnership and become involved in the business, challenge decisions and, of course, share in any profits. 

Poor planning can be potentially devastating for the ongoing survival of a company. What would happen to a director’s shares on incapacity through an accident or illness?  What happens to shares if a director decides to resign?

By sitting down with your business partner (or solicitor), all these eventualities and more can be planned for in an agreement between all of the shareholders. That way, when the unexpected does happen, you business won’t be blown off course.

A shareholders’ agreement will often spell out that, in the event of a death of or withdrawal from the company by a shareholder, the remaining shareholders have first refusal to buy that person’s shares.

However, having first option to buy still leaves the issue of how the shares are to be paid for.  If the company is successful, the shares may have a considerable value.  It is possible to take out life policies that can then be used to put towards the purchase price.

Protecting your business from the effects of the unexpected could be one of the wisest business decisions you will ever make. The decision not to put your company structure in order could be one of your worst.

 

For further information contact Ed Bailey .

The information given in this article is of a general nature only and should not be considered as advice applicable to any particular situation for which specific request should be made to us.