When planning the succession of a family business, the main aim is to make sure it thrives under subsequent generations. However, as the business is passed down over the years, it can become susceptible to outside forces such as death, divorce or bankruptcy or a wayward child – all of which can have a detrimental effect.
- Death: The death of a shareholder may mean that shares are left to a person or persons that the other shareholders aren’t best pleased about. Even if a will does leave the shares in a certain way, it can be challenged if it does not make adequate provision for someone such as a spouse. In addition, dependent upon the nature of the business and how long it has been held, there may be tax of up to 40 per cent payable on death.
- Divorce: A shareholder’s divorce may also put ownership in doubt if the shareholder needs to sell shares or secure debt against them to fund a divorce settlement. Worse still, shares may need to be given to the divorcing spouse against the families’ wishes if there are no other assets to fund a settlement. With one in three marriages ending in divorce, this is a very real risk.
- Bankruptcy: If a shareholder becomes bankrupt, their trustee in bankruptcy will dispose of their shares for the best possible price, regardless of who the buyer is.
- The wayward child: Finally, a shareholding child looking to fund a certain lifestyle may seek to dispose of their shares for the best price, regardless of other family members’ wishes.
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