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Shareholding
directors of a private limited company
The death or permanent disablement of a shareholding
director could have a serious impact both on the future
of your business and on your family. These are the
main areas you should consider.
Majority shareholders
The majority shareholders in a company may have important
voting rights that directly affect the running of
the company. In the event of a majority shareholder's
death, these rights would normally pass to the deceased's
dependants. This could affect the company in two ways:
1. The dependants now have the right to a say in the
running of the company. But do they have the necessary
skill and experience? And will they share the ambitions
and objectives that the surviving shareholders have
for the business?
2. The dependants might prefer to receive the value
of the shares in cash. But who will buy them? Unless
the other shareholders have sufficient liquid capital
reserves, they may be sold to an outside - possibly
hostile - third party, perhaps even a direct competitor.
Minority shareholders
Generally, it is the voting rights attached to a shareholding
in a private limited company that gives them their
market value. Minority shareholdings may not have
significant rights and so the shareholder's dependants
may inherit shares that are virtually worthless. The
only likely buyers of such a holding would be the
surviving directors, but they may be under no obligation
to do so.
Key staff
The continued success of your business may be dependent
on the special contribution made by a small number
of 'key' men and women. Your fellow directors will
be regarded as key people. The death or disability
of any of them could threaten your business' profitability.
Indeed, its very survival could be at stake.
Asset value
It is not easy to place a value on a person or to
estimate the likely business losses incurred by their
absence. Without the contribution generated by your
key person, your business could face major difficulties.
Even if they have a deputy, how long would it take
for this person to become fully trained and effective?
Comprehensive range of benefits
The premature death of a key person is likely to cause
an immediate requirement for cash, so life assurance
should be a top priority. However, it is not just
the death of a key person that can create serious
financial burdens for your business. Today, many serious
illnesses, such as a heart attack, stroke and cancer,
no longer necessarily result in death but may need
lengthy periods of convalescence.
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