Half of UK SME owners forget their own company shares in their Will

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Over half of Britain’s small business owners have left no instructions in their Will or made any special arrangements regarding shares, leaving their business at threat of closure should a director pass away.

These are the findings from Legal & General’s ‘State of the Nation’s SMEs’ report, which also finds that only 26 per cent of shareholders said that they would buy the shares left following the death of a fellow shareholder, with over half having to rely on their personal wealth to do this.

Fewer than two in every five people had considered how a life policy could help. One in five said that they thought that their beneficiaries would inherit and become active in the business. A further 16 per cent would simply look at selling their shares to a third party.

The survey of UK small and medium-sized businesses also found that just 41 per cent of companies had a shareholders’ agreement and worryingly only a third had reviewed their arrangements since their business started.

Nearly four in ten 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 lead not only to shares being tied up in probate, paralysing an SME’s operations if this was a majority share, but could see the beneficiaries of these shares becoming involved in the business, whether or not they have any aptitude. Or, in the worst-case scenario, selling those shares 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.

“To help mitigate these risks, businesses should consult a financial adviser to consider the best options to protect their firm from the death of a key person. At the very least, SMEs need to establish a plan about their shares, or include some form of arrangement in their Will, if they are to ensure the business is left in a strong position to deal with a critical event such as the death of an owner.”