It is important that those with business interests not only look after the legal affairs of their business but also their personal legal affairs. The following is a list of some of the main legal issues business owners should consider.
Individuals with interests in private limited companies
· Individuals who own shares in a company (substantial or controlling) should consider having a Lasting Power of Attorney in place. This document would specify who can make decisions on behalf of that person in the event that they lack capacity to make decisions themselves, including voting control over company shares. In the absence of a Lasting Power of Attorney an application to the Court of Protection would need to be made by a close family member and the Court would then give directions as to how the shareholdings should be administered
· If a shareholder dies then their shares will vest in their executor if they have Will. In the absence of a Will a Court Order called a Grant of Letters of Administration would have to be obtained to enable an individual to take control of the shares. Until then, shares are “disenfranchised”. If there were two shareholders the surviving shareholder would during the “disenfranchisement” period hold 100% of the voting shares, permitting them to approve transactions and exercise full voting control of the company.
· Shareholder agreements can include provisions about the manner in which day to day decisions are made. Shareholders agreements do not need to be registered with Companies House so their provisions can remain private. These agreements can also include provisions which would sometimes be recorded in a separate document called a cross-option agreement. If a shareholder has made a Will then that would probably leave their estate to their family members. A shareholders agreement therefore can include provisions which permit the surviving owner(s) to purchase the deceased’s shares in the company from their estate, specify how shares are valued and a timescale for the payments being made. A properly drafted agreement ensures that the control of the business remains with the surviving shareholders whilst ensuring that the estate of the deceased shareholder gets a fair deal at the same time.
· Shareholders should consider carefully how the survivors will pay for the shares. The shareholders could look at insuring each other’s lives with life insurance contracts which should provide a fund to pay for the purchase of the shares. It is often advisable for inheritance tax (“IHT”) purposes for the policies to be written in trust. Shareholder Agreements need to be drafted very carefully to ensure that valuable IHT relief (if available) is not lost, in particular, whether any written agreement can be said to create any binding contract for the sale of shares which leads to relief being disallowed
If you have any queries or need advice on shareholder agreements or contracts speak to Umberto Vietri on 01535 613 674 or speak to Liam O’Neill on 01756 692 883 for advice and guidance on Tax, Lasting Powers of attorney, trusts or drafting a will
Partner; Wills & Probate