Over half (51%) of Britain’s small business owners have left no instructions in their Will or made any special arrangements regarding what should happen to their shares, leaving their business at threat of closure on the death of a director, according to Legal & General’s ‘State of the Nation SMEs’ report.
Only 26% of shareholders said that they would buy the shares left following the death of a fellow shareholder, with over half (51%) having to rely on their personal wealth to do this. Fewer than two in every five people (38%) had considered how a life policy could help. One in five (21%) said that they thought that their beneficiaries would inherit and become active in the business. A further 16% would simply look at selling their shares to a third party
The survey of over 800 SME businesses also found that only 41% of companies had a Shareholders’ Agreement, whilst only 32% and 40% respectively had reviewed their Articles of Association or Partnership Agreement within the last year. Worryingly, one-third (33%) had not reviewed their arrangements since their business started.
Nearly four in ten (36%) of SMEs with a worth of over £5m also had no Share Protection Insurance, which could allow them to buy back the shares through a lump-sum payout and avoid the impact of shares being tied up in probate.
Richard Kateley, Head of Intermediary Development at Legal & General, said:
“For those established SMEs that have a presence in their chosen market, 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 not only lead to shares being tied up in probate – paralysing an SME’s operations if this was a majority share, but it could also see the beneficiaries of these shares becoming involved in the business, whether or not they have any aptitude to do so. In the worst-case scenario, it could result in the shares being sold to a competitor, meaning the surviving owners losing control of their business.
Many business owners see their business as a way to fund their retirement. The death of an owner could not only put their family’s financial wellbeing at risk, but equally their fellow owners due to the impact on the business. A simple Shareholder Protection agreement can help to protect the owners from a situation like this, as well as help the business stay in the right hands and flourish”.
If you own an established SME, you must consider what would happen in the event of your death, and the risks of leaving shares unprotected. Whether you need to revise your current provisions, or put something in place from scratch if you currently do not have anything, you need to take specialist advice to ensure you have the necessary provision in place should the worst happen.
Heir Tight Wills helps clients put in place robust provisions and valid documents, to protect their loved ones and their assets – both personal & business – during their lifetime and after their death. For a FREE Consultation to discuss writing or updating your Will & estate planning provisions, contact Rachael Rodgers on 0845 519 7585, or CONTACT US via email.