If you’re running a business, the rewards aren’t just for you; they’re for your family too. Should you or your business partner unexpectedly pass away, can you say with certainty who the shares would go to? Forethought can help you make arrangements.
things to think about…
business succession, sales and shares
A business succession strategy dictates what happens to a business when it is left behind.
Without an appropriate strategy, you leave yourself open to several risks:
- Your family may not inherit your shares
Business partners may not be able to legally buy out your shares
- Your family may be obliged to take over the business
- The value of the business could depreciate
- The business may have to be sold, with proceeds liable for inheritance tax
- Your partner may not have sufficient funds to buy you out, leaving the business exposed
In your will or specially written agreement, you need to explicitly state where you’d like your business shares to go.
Without one of these documents, shares are subject to the Laws of Intestacy; meaning the inheritor could end up being someone different to whom you’d like.
cross option agreements
One way to prevent a remaining business owner from experiencing difficulties buying out their deceased partner is by creating a cross option agreement. This gives shareholders the chance to purchase the shares before they are passed down to relatives, retaining control of the business.
Alone, probably not.
With a standard cross option agreement, the surviving partner owns 100% of the company, but may be forced to pay some inheritance tax if the business is sold. The proceeds from the sale may be subject to further taxation, settlements and various other costs.
That’s why having a multifaceted business strategy in place (with bespoke cover/contracts) is so essential.
Carefully orchestrating your exit from the business in advance can:
- Mould your business into the ideal shape for your chosen exit option – maximising the value you get from it
- Ensure potential successors are ready to take over the business (if it comes to this)
- Give you an option to exit at any time; perhaps when the business is doing well and the market conditions are advantageous
By engineering an exit strategy, you can steer your business in the right direction to help you achieve your financial and personal goals.
Your business exit strategy can affect:
- The value you and other shareholders gain from the business
- The deal you receive; cash, deferred or staged payments
- The future success of the business and value of its products or services
- Whether you retain any involvement in your business
- Your tax liabilities
Our business estate planning can help you shape a strategy that provides significant protection, now and after death, through solutions such as cross option agreements, trusts and life cover.
Speak to the team at Forethought to start getting your business exit strategy in place today. Call 01565 656 619 and book a free initial consultation.
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