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Buachaill
Buachaill, Barrister
Category: Law
Satisfied Customers: 10528
Experience:  Barrister 17 years experience
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I am MD of a startup company. We are now sorting out the shareholders

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I am MD of a startup company. We are now sorting out the shareholders agreement for the founders. We will have 4 shareholders in the business - myself and my business co-founder who will own 90% of the company 50:50 (we both work in the business and are salaried), my co-founder's husband and my life partner who will each own 5% (who don't work directly in the business, but sometimes provide services free of charge). What is the best way to set things up so that if any of us die, the shares of the deceased are passed to the remaining parties without us having to either buy those shares, or pay inheritance tax on them? We regard the business as "shared property" between us since we have created everything together.
Submitted: 1 year ago.
Category: Law
Expert:  Buachaill replied 1 year ago.
1. The simple expedient to ensure shares pass to others without having to buy them or pay inheritance tax on them is to designate them "life shares" extinguishable on death. In this way, ownership of the company can be passed to the remaining shareholders without any need for transfer or any need to pay inheritance tax.
Expert:  Buachaill replied 1 year ago.
2. However, you need to consider whether, for example, if a 45% shareholder dies, you then want the remaining shareholders to own the company in proportion to their shareholders so that they are then owned 45;5:5, so that only one couple now control ten elevenths of the share capital. It puts an emphasis on longevity and doesn't reflect the work each shareholder might have put in.
Expert:  Buachaill replied 1 year ago.
3. If might be better to designate that each couple's shares are extinguishable upon death as between themselves, so that they can each take a one half share in the company without any worrying about transfer fees or inheritance tax. However, this is only a suggestion which you are free to ignore.
Expert:  Buachaill replied 1 year ago.
4. Please Rate the Answer as unless you RATE the Answer your Expert receives none of the money you have paid the website so there is no incentive to answer any further questions.
Customer: replied 1 year ago.
I don't understand your suggestion 3. Could you please explain?
Expert:  Buachaill replied 1 year ago.
5. A life share would be one expressed to last only for the life of the initial holder or owner and upon the death of that person they no longer exist. The company simply extinguishes the life shares upon the death of the named initial owner or holder and the life share ceases to exist upon the death of the initial holder. In case they are sold, there can be a provision that the life share is freely tranferable and if transferred to a different party can continue in perpetuity (forever).
Expert:  Buachaill replied 1 year ago.
6. For example, suppose a person is issued with a life share, then if they die, then those shares cease to exist. The company would then be owned by the surviving shareholders in proportion to their surviving shareholdings.
Customer: replied 1 year ago.
Is it possible with shares extinguishable on death that we could set things up so that if my co-founder dies all her shares go to her husband, then if he dies their shares are extinguished so that my life partner and myself continue to own the company?
Expert:  Buachaill replied 1 year ago.
7. yes, it is possible to achieve this feat. It simply requires a solicitor to draft amendments to the Company's memorandum and Articles of ASsociation. This is something which you should get a good company law solicitor to do for you. There would be many in London who would have expertise in this area. However, you should shop around if you are outside London.
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