Business development ยท 13 June 2017

Do you have a business contingency plan in place if you die?

Business contingency plan
An alarming number of directors do not have a business contingency plan
New research has suggested more than half of SME company owners have no business contingency plan, such as details in a will, in place if they pass away.

It may sound like a morbid subject, but Legal & General’s State of the Nation’s SMEs report has highlighted a lack of planning when it comes to a will or special arrangements following the death of a director or owner.

The report also found that only 26 per cent of shareholders would buy the stakes of their fellows if they died, with 51 per cent relying on personal wealth to do this.

A total of 800 small and medium-sized businesses were questioned by Legal & General, revealing only 41 per cent have a shareholders? agreement.

Richard Kateley, head of intermediary development at Legal & General, said: The death of a business owner can be hugely significant should there be no plan in place or an arrangement regarding company shares.

this could lead not only to shares being tied up in probate, paralysing an SME’s operations if this was a majority share, but could see the beneficiaries of these shares becoming involved in the business, whether or not they have any aptitude.

Kately also suggested a worse-case scenario also being a possibility the selling of shares to a competitor, meaning the surviving owners losing control of their business.

Some 32 per cent of British SME owners have not reviewed their articles of association in the last year, while 40 per cent have not done the same for the partnership agreement.

Shareholder agreement

Agreement setting out shareholders? rights and obligations, how the sales of shares will regulated, the way in which the company is run and determine protection for? minority shareholders.

Articles of association

Document required by limited companies after getting incorporated with Companies House setting out financial accountability of members of the company, powers of company directors, selection and dismissal of directors, dispersal of company profits and issue and transfer of shares.

Partnership agreement

Contract between partners in a partnership which sets out the terms and conditions of the relationship between the partners including the percentages of ownership and distribution of profits and losses.

Legal & General’s Kateley believes, at the very least, SMEs need to establish a business contingency plan about company shares or include some form of arrangement in a will. This will, he added, ensure the business is left in a strong position to deal with the death of an owner.

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ABOUT THE EXPERT

Hunter Ruthven was previously editor of Business Advice. He was also the editor of Real Business, the UK's most-read website for entrepreneurs and business leaders at the helm of growing SMEs.

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