Wednesday, 10 June 2015

Share and share alike...

Shareholders must always have a back-up plan to protect the business in case a major player is taken ill, a Shropshire legal expert has warned.

Eliot Hibbert is the head of the Corporate Commercial Team at Martin-Kaye Solicitors, in Telford, and he said the serious illness or even death of a shareholder who is also the head of the business would undoubtedly cause problems.

“There have been cases where such circumstances have led to the break-up of a company, so even though it may sound obvious, having a plan in place will help your business to cope either temporarily, or permanently.”

Eliot said the plan would need to address the death or illness of a controlling director shareholder.
“In both situations, the aim is the same – to decide who takes their place and when. Maybe you’d prefer to rotate the position between directors, perhaps every three months, until a permanent change is made?”

But Eliot said it was ultimately the voting rights attached to the shares that were the most important element.

“If a key person is ill, then they still own the shares and the voting rights – unless they become mentally unwell. But if the shareholder dies, the power will shift, so your plan will need to cover both eventualities.”

The first point to check would be your company’s articles of association as they usually contain rules which authorise the executors of the shareholder’s will to register as the share owners until they’re transferred to the beneficiaries.

“But this may not suit your company’s plans – or the beneficiaries either – and you don’t want to end up in a complicated and expensive legal situation trying to sort it out.

“Draw up a shareholders’ agreement which sets out what will happen to the shares, and the shareholders should also amend their wills so they are consistent with the plan. This way you can avoid any disputes over ownership and voting rights, and secure the future of the business.”

Pic:    Eliot Hibbert from Martin-Kaye Solicitors in Telford