Shareholder Agreement In Family Business

By far the simplest way to avoid a disaster is to define provisions in the shareholder contract or in a cross-option agreement dealing with what happens in the event of a shareholder`s death or incapacity. Here is the first tricky problem. Should shareholders allow spouses (also known as my sister-in-law) to transfer? If not, my brother may have to pay inheritance tax to pass on his stock to his children. We could therefore include marital trusts as authorized takers, which in turn allows inheritance tax to be deferred until his wife`s death. As a compromise, we could require that only licensed purchasers be allowed to (a) be agents and (b) residual beneficiaries in the event of the father-in-law`s death. For more information on how a shareholder contract might work for your business, please contact Richard Coulthard on 0113 284 5000 or send an email address Richard.Coulthard@isonharrison.co.uk In family businesses, a well-thought-out shareholder contract can provide a reasonable framework for the family that it can follow in the event of disagreement, which reduces the risk of family conflict. It should also spark some discussion about succession planning, so that the business can remain the property of the family without preventing its growth and development. The agreement should define who the shares can be transferred to without affecting them. This often includes: a shareholder contract may contain provisions governing the transfer of shares in general or, in the event of the death of a shareholder. For more advice on shareholder agreements and benefits for your business, please contact Christian Mancier, Corporate/Commercial Partner, through christian.mancier@gorvins.com. If you prefer to call Christian, you can do so on 0161 930 5117. Second, the agreement should indicate events that may have consequences.

Clearly, the transfer of the stock to someone other than an approved purchaser should trigger the anger of the agreement. Other examples could be that succession planning is often not at the forefront of most people when they take on a new business. However, the death of a shareholder can have devastating effects on a business. Just as a shareholder contract can be developed to protect the minority stakes of a company`s shareholders, it can also work to protect majority shareholders. An example is a drag-along system that forces minority shareholders to sell their shares if the majority shareholders find a buyer. Given the information available to shareholders, particularly in an owner-led company, it is customary to prevent these shareholders from competing with the company and to recruit important employees, customers and suppliers during and for a period after the termination of the activity as a shareholder. In the meantime, have you thought about the other type of chords that can divide at the beginning and bring order to the end? Yes, marital agreements are probably the most difficult for family entrepreneurs to discuss and adopt. Maybe we`ll cover them another time.

Or maybe not. But what if you hadn`t considered starting a shareholder pact? Or if you haven`t done a good job of making sure every new share beneficiary signs the deal? What if you now have more than 20 shareholders and no document that connects them? Is it worth a try now, or has the train left the station? Avoid many of these disputes by setting out a clear participation policy in the early stages of your family business. There are many ways to ensure that each of these rights or obligations can be tailored to a particular family or business, so that it can be a bespoke document that is useful in an individual circumstance. The benefits are obvious. In the absence of policies, anyone holding shares in your family business can sell these shares to others, including non-family members, at any time.