Most people who run a small business put hours of work in to it and it provides the family income and hopefully one day can be sold to provide cash for spending later on in life. However, it’s a sad fact that almost all the businesses we deal with in the North East few, if any, have sorted something out to protect the family wealth if a major shareholder or key person dies within their business.
At Wades we see that most companies do not even have a shareholder agreement which sets out what will happen in certain circumstances regarding death of a shareholder or long term illness. Imagine the situation where you have two Directors owning 50% each of a small company. One sadly dies, the widow inherits the shares and the company has lost a key person. The two parties have different objectives. The surviving Director wants control of the company and to try and replace his lost Director. He also wants to reassure the bank and customers that the same service can be met and profits maintained.
The widow, however, wants to know how she is going to live now the earnings have stopped and how is the company going to give her that. Lets face it, she can hardly work in the company but holds 50% of the shares. To make matters worse, imagine that the company has some borrowings which of course the bank secured on the Directors homes.
Will the bank take the charge off the deceased house? Not a chance until the borrowing is repaid and where on earth is the company going to find the money. It’s a big mess and it could all have been avoided by taking some advice from your financial Planner at Wades.
So, for a chat to put your affairs in order and avoid losing the business and perhaps your home, call us and do it now.