Death and sickness. Not the cheeriest subject to discuss over the boardroom table, but they’re certainly not things to put your head in the sand over.
Many SMEs are owned by a few key individuals. Have you considered what would happen if one of those owners (whether that’s you or one of your colleagues) were to fall seriously ill, or die? You might assume certain things would happen. Perhaps that your family would benefit from the value of the business you had built up, or, if you’re the surviving owner, that you can carry on the business. But this is not necessarily so.
Without a formal agreement in place between the owners, in these situations you would be relying on general principles of company or partnership law and the ‘solutions’ offered by the relevant statutes, aren’t always appropriate.
In a Partnership, the exit of a partner from the business can mean the partnership terminates. In a company, if a shareholder ceases working for the company, in many cases, nothing at all happens with their shares. Unless of course they died and left their shares to someone in a will. To their spouse perhaps. Or maybe a sister in Australia. Or to the Cats Protection League.
If you’ve assumed your family will benefit from your hard work over the years and be able to inherit the value of the business when you’re gone, or if you want to be able to utilise that value while you’re unable to work through illness, how do you envisage that happening? Do you expect that your fellow owners will pay something? Or the business? Can either of them afford it? Will they want to?
All of these issues can be dealt with in a formal contract between business owners: either a Shareholders Agreement or a Partnership Agreement. Those documents can set out precisely what should happen in the event of a death or illness. You can decide between you what that should be so you’re not left at the mercy of general laws that haven’t been tailored to your personal situation. You can also decide if there should be insurance in place to fund the agreed plans (and who should pay for that).
Although not pleasant topics to discuss, death and illness are important things to plan for and your loved ones will thank you for it (as will your fellow business owners if it means they don’t have to share the business with your relatives they’ve never met, or any obscure charity you may favour!).
Part of my job is to raise these worst case scenarios and to guide business owners through the difficult subjects. Fortunately, it doesn’t have to be too gloomy a task. Let’s face it; it’s a couple of conversations and a contract in return for peace of mind if the worst should happen.
For further information on Shareholders Agreement or a Partnership Agreement please don’t hesitate to contact Farleys Solicitors experienced Company Formation and Start Up department on 0845 287 0939. Alternatively please complete an online enquiry form.