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keep shares in Company on death of Shareholder

Very small Ltd company, how to keep shares in Co and minimise tax liability on death of shareholder

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!

 

 

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23rd Oct 2017 14:40

I think you should probably hire a lawyer.

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23rd Oct 2017 14:57

Undoubtedly you need a solicitor to draw up a shareholder's agreement. Any encouragement to attemp it yourself should be resisted.

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By ash1978
23rd Oct 2017 15:12

Thank you for your replies.
I assumed this type of request would be very common and so would be quite simple and DIY. Any idea of the approximate cost associated with getting this done by a lawyer?

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to ash1978
23rd Oct 2017 15:17

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.

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23rd Oct 2017 15:26

Make sure that you specify exactly how the 1/3 is valued to avoid headaches later.

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to Wanderer
23rd Oct 2017 15:37

And how you settle disputes when one s/holder has left and you have a 50:50 ownership split

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to WhichTyler
23rd Oct 2017 15:42

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

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By ash1978
to WhichTyler
23rd Oct 2017 15:54

thanks that's lots to think about. I just hate paying for lawyers especially for something that is between family.

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By mrme89
to ash1978
23rd Oct 2017 15:58

There’s nothing like a family argument when money is involved!
All the more reason to stop being a skinflint.

Thanks (1)
By ash1978
to mrme89
23rd Oct 2017 16:04

Ha! yes I prefer to spend my money on handbags to smack my brothers round the head with! Thanks I agree, may be swayed to see a lawyer

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to ash1978
23rd Oct 2017 16:39

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?

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to ash1978
23rd Oct 2017 21:33

And none of these spouses are ever going to get divorced, are they?

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By ash1978
23rd Oct 2017 15:56

Also, what's the difference of putting all this in the Articles as opposed to a Share holder agreement? is the Agreement just more detailed?

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23rd Oct 2017 16:03

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.

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By ash1978
to timothyvogel
23rd Oct 2017 16:12

Thank you that's very useful I think I will DIY and keep my fingers crossed. Others have raised really good points to address within the M and A so I'm going to put those years of watching Judge Judy to practice!

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By mrme89
to ash1978
23rd Oct 2017 16:19

Yeah, there's nothing more helpful than an American reality show to assist you in drafting a legal document in the UK ...

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By ash1978
to mrme89
23rd Oct 2017 16:28

don't worry I watch Rinder too!

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23rd Oct 2017 16:31

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.

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By ash1978
to Glennzy
23rd Oct 2017 16:35

Hi thanks, I think this is why we wanted to be able to pay for it over a long period of time such as 10 years, but I will look into some keyman cover.

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24th Oct 2017 11:11

Don't forget about the rules re binding contracts for sale and IHT!

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