Hi All,
Really grateful for any advice.
Below is a brief overview of the Company:
- 3 Shareholders, all have spouses and children
- Equal shareholding exc Director has one share more
- minimal profit
What we want is to ensure that if one of us dies,
-the remaining shareholders have the right to buy the shares, i guess from the spouse
- the spouse has to sell them to the remaining shareholders
- avoid IHT or any other tax liability on this transaction
- the two remaining shareholders must pay the value of a third of the business (whatever this is at the time) for the shares over a set number of years (probably 10 years) to avoid financial difficulties.
All three siblings get on very well and are happy to have this type of agreement in place. I have no idea how to go about this or even if it can be done. Do we put it in the Articles and have a seperate shareholder agreement with the finer details?
Thank you in advance!
Replies (20)
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Undoubtedly you need a solicitor to draw up a shareholder's agreement. Any encouragement to attemp it yourself should be resisted.
In theory it's pretty simple and so long as nobody decides to ever challenge it you could absolutely do it yourself. The issue is if anyone does decide to challenge it then they'll undoubtedly do so with the aid of a lawyer who can pick apart anything you've not been 100% legally accurate with.
I would expect the fees to be around the £1K mark but I'm guessing wildly, I really don't know. You'll be able to get an accurate quote before engaging one though, just tell them what you want and ask.
And how you settle disputes when one s/holder has left and you have a 50:50 ownership split
And what happens if one s/holder wants to exercise their right to purchase and the other one doesn't
Or they both want to purchase all of the leavers shares?
Or the busniess folds before the 10 years are up?
Or two shareholders die at the same time...
That's why these are not as simple as you may think
There’s nothing like a family argument when money is involved!
All the more reason to stop being a skinflint.
Also the process of thinking about and answering these kind of questions might change/reveal people's attitudes (e.g. I don't want much to do with it, why don't you buy me out now.) You mention that it's not v profitable, but if it's worth going to all this trouble over, does that mean it has significant assets?
It is a simple and common issue, and many Memorandum and Articles already address this, including some standard ones, so I disagree over the need for a lawyer. In any event last couple of times any of my clients went to court over company law the lawyers on both sides were criticized by Judge for not knowing the company law and he praised both sides accountants for getting it right.
I would say adopt new M and A but to bolster it a shareholders agreement is useful, but there are many standard ones available online. The one we would use for clients comes from Simplydocs. Total cost to client £750 last time we did one, but it is a straight forward if slightly tedious task.
Yeah, there's nothing more helpful than an American reality show to assist you in drafting a legal document in the UK ...
Have you thought about how the future purchase would be funded? What happens if there you don't have suffcient to buy the dead shareholders shares.
You could consider some keyman cover that would pay the money needed to square up the estate so you can get the shares.