If you are a Director of a small family business and one of your fellow Directors were to die unexpectedly or suddenly be unable to work through an illness, would the business suffer financially? The answer is that in most cases, this would result in a period of acute financial instability. This situation can be easily averted if you take some advice.
Nicholls Stevens have been advising small to medium size companies for many years
The first action which is needed is to find the shareholder agreement and, in fact, if there is not one in place, to go and see the Solicitor and get one in place
Next, you need to read the agreement to see what is to happen in the event that a Shareholder Director dies or is unable to work through ill health. Usually the Share agreement will say that the surviving Directors have an option to buy the shares from the family
This of course, presents both parties with a problem, the family would most probably prefer to have cash rather than the shares and the remaining Shareholders would prefer the control of the company to remain with them and not to pass to other family members. However, the surviving Directors/Shareholders not only have to fund the purchase of the shares of their sick or deceased shareholder but also maintain the work and profitability of the company
The solution is normally to put in place some life assurance which will pay out a capital sum on the shareholder’s death so that the shares can be swiftly purchased , without any Inheritance Tax Liability if this is done correctly. If you want more information as to how this can be set up do get in touch, we will prepare a report for you on a fee basis.