The strength of most private limited companies is the work and effort put in by the Directors of the company who are usually the key shareholders. As well as financing the company, they have also contributed their time and skills and the value of the company has risen due to their collective efforts.
On death of a shareholder (unless sole) a company will continue and the shares of the deceased Director will pass to their estate. Often the bereaved beneficiary will not want to be involved with the running of the business and will wish to sell the shares. However this can be difficult if they are only minority shareholders and are trying to sell outside of the company.
The existing Directors may not want the shares going outside of the company and this may even include a wish to prevent an ex-directors family being involved with the company. The solution is for all the Directors to come to an agreement where they will buy out a Director’s share if he or she dies.
Share purchase assurance allows Directors to make provision for such a possibility and ensures:
- The business stays in the hands of the current Directors
- A fair value is paid for the shares
- Costly loans are avoided
- Quick payment for the relatives of the deceased Director
- Company does not fall into outside hands
A trust can be set-up to ensure that any payment paid out is not subject to inheritance tax or probate.