If a shareholder or partner in a business passes away there can be serious implications for that business. It doesn’t take much imagination to see that the day-to-day running of the business could be severely hampered, especially if the deceased was very ‘hands-on’ and many business owners simply don’t anticipate the potential impact on the ownership of their business of losing a shareholder or partner.
According to a survey conducted by Legal & General, a third of businesses do not have share protection in place.
If a business owner dies with no share protection, their share in the business may be passed to their family which may mean:
- the surviving business owners could lose control of some, or all, of the business.
- their family may choose to become involved in the ongoing running of the business or could even find themselves with no option but to sell their share to a competitor.
If set up properly, share protection will help to avoid these issues. It provides the surviving business owners with the funds to purchase the deceased’s shares from their family at a pre-agreed fair value. The surviving business owners retain control of the business while the family of the deceased receive fair value for their share of the business.