Most people know that probate is stressful and time-consuming.  Difficulties can be made worse in an estate where shares in a company are involved.  Owner managed companies or family businesses are often the main sources of income for surviving family members which makes it even more important to ensure that the business can continue to run and your family can extract value from the business in the event of a death.

A well drafted Will creating a trust can make sure that the shares in your business pass to the person or people best able to make decisions in relation to the business.   This may not always be the people you want to receive the benefit (for example where children are your main beneficiaries). Choosing the right executor and trustee is vital where businesses are involved.  You can appoint whoever you would want to make shareholder decisions as Trustees so that they can maximise the value of the shares for the benefit of your family. It is also important to consider how Trustees will interact with the Board of a company and whether there is a way of ensuring Board Representation for the Trustees so that they can make commercial decisions on behalf of the company.

It is vital where businesses are concerned to ensure that disputes do not arise when a person dies.  Disputes can cause huge stress and legal costs and often result in family members being unable to access a value from a business.   Where family companies are involved it is vital to ensure that trustees or executors also have a role on the board as it is the directors of the company who will remain responsible for declaring dividends and deciding when value leaves the company.

Trusts are often useful where clients want to appoint one person (or a professional) to be legally responsible for running the business with a value being passed to family members.   Where there are a number of different family members who are intended to benefit from the shares it is often preferable to have one or two family members as trustees (the ones with the greatest knowledge of the business) so that they can make commercial decisions for the benefit of the family as a whole and if the business is sold participate in the sale process. Where the shares are split between a large number of shareholders difficulties can arise in relation to the sale of the business.  Appointing the correct trustees can enable them to make decisions in relation to extracting value from the business or engaging in a sale process without referring to or seeking the agreement of each family member. It is obviously important to appoint trustees whom you trust to carry out your wishes and look after your family in the way you would wish.

Shareholder agreements are also useful in respect of family businesses as they can enable the family of a deceased shareholder to sell their shares to other shareholders.  This works well where there are, for example, two families running and operating one business. Shareholder agreements are often accompanied by life insurance policies which enable a lump sum to be available so that the surviving shareholder can buy out the deceased shareholder’s family.   This can enable the family of a deceased shareholder to extract their value from the business without needing to remain involved in the business.

We specialise in tax efficient wills for clients with owner managed businesses and shareholder protection agreements and trusts.