Right now, business owners are facing many difficult questions – how will we manage our finances? How can we keep our loyal clients? How can we retain our employees? The silver lining is that this situation will come to an end. In the meantime, all we can do is take the possible steps to be ready to open our doors again, when it does.

Another of the difficult conversations for business owners, is that of their shareholder agreements. Owners of Limited companies with fellow shareholders, are asking “how will the business continue to operate if the worst were to happen to any shareholder?” or “does our existing shareholder agreement cover this event or do we need new provisions inserted?“

In addition, there are some businesses that do not have a shareholder’s agreement in place and are seeking advice on what this might mean for the business, fellow shareholders, employees and families.

If either of these sounds like your business, you may wish to consider an updated shareholder agreement. It is possible to have a clause whereby, in the event of one of the shareholders passing, a notice will automatically be triggered to the other shareholders. It will give them an option to buy a deceased’s shares from their estate, for a fair market value.

This means the estate gets a reasonable lump sum payment for the shares. The company can continue to operate and keep the shareholding among those already working directly in the business. It also means the company avoids an uncomfortable situation where the business shares are being held by family members of the deceased, and don’t have any interest or experience in the company. This clause can also apply where a shareholder becomes incapacitated for a long period of time, or even where a minority employee shareholder ceases to be an employee (perhaps because cutbacks are necessary in the business).

A further consideration is to include a cross-option clause, in which either the deceased’s estate or the ongoing shareholders can serve notice on the other to buy their shares in the company. This cross-option can be supported by relevant life insurance policies.

If you need to discuss your shareholder agreement, or any of the above options, don’t hesitate to get in touch. Our company and commercial solicitors are working remotely and are here to help.

You can read more about our company and commercial legal services here: https://www.hrjforemanlaws.co.uk/legal-services/company-and-commercial