Jeffrey Mills Solicitors
JEFFREY MILLS SOLICITORS
- Is your business prepared for death?
If not it could close.
July - September 2017
Many businesses, from sole traders to much larger multinational companies, do not think about the impact the death of a director or shareholder could have on their business.
Without taking the right precautions your death could result in the company being left in debt, staff left in limbo or even struck off at Companies House.
If you own company shares or are a shareholder in, or director of a company, and die without leaving a valid Will then these issues can become complicated and difficult to resolve and can adversely affect the future of the business.
It is easy for problems to arise over shares held by a deceased. Memorandum of Association will make provision for the death of a shareholder, provided the Will does not contradict the arrangements agreed on at the inception of the company.
In cases where a will and pre-agreed resolution in the Memorandum isn’t present, shares are divided under the Intestacy Rules (beneficiaries under the Intestacy Rules take a vested interest at 18 – a young age to be responsible for running business).
This can cause a lot of problems especially where a beneficiary starts demanding dividends but makes no contribution to the company and the existing shareholders cannot afford to or are not prepared to purchase the shares.
It can also reduce the value of shares if they only hold a minority shareholding, as it is often only those other shareholders who are prospective buyers.
Having a Will in place, however, ensures the shares are passed to the appropriate beneficiaries and executors are appointed to manage the shareholding, which allows the company to continue operating effectively.
Should you have many beneficiaries with competing interests, and many shareholders involved with the business, you can add into the Will a “cross option agreement”, which means that the shareholders agree to buy the shares of the deceased at a calculated price.
In order to guarantee funds for the purchase, shareholders can take out life insurance which would have to tie in with the Will provisions of the deceased.
A company could face financial problems if the deceased provided funding to the company, as they would be considered a creditor, meaning it would become an ‘asset’ of their estate, and would need to be repaid.
In order to minimise this the loan terms need to be properly documented in a Will.
Businesses with a sole shareholder and no surviving director to deal with creditors are often struck off at Companies House, which can be disastrous for not only the company, as it could lead to claims against them, but also for any employees.
Companies will also often find they will undergo potentially unpleasant investigations in the deceased’s execution of director’s duties owed to company creditors prior to death, which are then often claimed back upon their estate.
To avoid this you need to ensure that your Will appoints suitable executors and trustees to restore order and continue to operate the company after death.
Running a business is always very busy and time consuming with different priorities and demands to focus on; however, it would be disastrous to spend all your time building a successful business only for a disaster to strike and the value of your business to suffer, or worse, close.
By planning ahead and providing for what should happen on your death you can put the right provisions in place so this doesn’t happen, making sure that the business passes to your beneficiaries appropriately, and in a way that will allow your company to continue to grow after you have gone.
Sally Power, Solicitor Private Client Department and her team are available if you have any questions or would like to make an appointment to protect your business.
Should you require legal assistance from a firm with family values and a fresh approach, contact Jeffrey Mills Solicitors.
Tel: 01480 219600