As long as all the key players are still alive, it is normally possible to put into effect the transactions required to hand over the reins (after taking into account all the necessary advice on tax and legal implications etc.). However, where one of the key players dies in situ, things are not always as straight-forward as the parties had imagined they would be.
The starting point, of course, is for the executors to check the terms of the deceased’s will (or if he or she hasn’t made one, the rules on intestacy). But anyone writing or reviewing their will needs to be careful. A will cannot direct the executors to transfer assets that the deceased does not own or does not have an unfettered power to transfer. An obvious example would be leaving a legacy of a car that the deceased has already sold – clearly this legacy fails. Not so obvious however are directions with regard to the deceased’s ownership of shares in the family company. The executors will need to check the following:
- The articles of association. The articles will be a matter of public record available from Companies House. Do the articles require the agreement of other shareholders before transfers can be made?
- Any shareholder agreement – this is a private agreement between shareholders and may not be apparent from the deceased’s papers so enquiries may need to be made of the other shareholders to see if there are any restrictions on the transfer of shares
- Any option agreements – sometimes the shareholders enter option agreements so that others have the right to buy shares on the occurrence of a certain event (e.g. death) at a predetermined price or in accordance with an agreed formula.
Any of the above could obstruct the smooth hand over of the company if they are not properly thought through, appropriately communicated and reviewed on a regular basis to make sure they are still likely to achieve the desired outcome.
Finally, it is worth considering what would happen in the, sadly all too common, event that a shareholder loses the capacity to act and make decisions which can, in some circumstances be even more difficult to deal with.
The next step
For further information on passing on your family company, please contact your usual UHY adviser.