Shareholder Protection
Shareholding Directors of a
Private Limited Company
The death
or permanent disablement of a shareholding director
could have a serious impact, both on the future of
your business and your family. So what are the main
points you need to consider?
Majority Shareholders
Majority shareholders may have
important voting rights that directly affect the
running of the company. In the event of a majority
shareholders death, these rights will normally pass
to the deceased's dependants. This could affect the
company in two ways:
- The dependants now have the right to the say
in the running of the company, but probably
without the necessary skills and experience.
Will they share the objectives that the
surviving shareholders have for the business?
- They might prefer to receive cash for the
shares they have inherited, but who will buy
them? Unless the remaining shareholders have
sufficient liquid capital reserves, they may be
sold to a third party that is involved as a
competitor to the business
Minority Shareholders
Generally it is the voting rights
attached to a shareholding in a private limited
company that gives them a market value. Minority
shareholdings may not have sufficient rights and so
the shareholder's dependant's may inherit shares
that are virtually worthless. The only likely buyers
of such a holding would be the surviving
shareholders, but they may be under no obligation to
buy.
Shareholder Solution
The simple answer to both of
these scenarios is shareholder protection. A legal
agreement is signed by all the shareholders, who
agree to sell their shares in the event of their
premature death and an insurance contract(s)
provides money for the surviving shareholders in
order for them to buy the deceased shareholders
equity in the business.
Summary
Not sure
if your
business may be in a vulnerable position should
this happen to any of your key employees,
then please
contact us
for a total independent, professional and detailed
analysis of your business requirements. |
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