Once there were 3 brothers who ran a very successful business via a company in which they all held shares and they all worked on a full-time (and a bit more) basis.
Like most brothers there were niggles between them from time to time but they got on and they certainly didn’t consider they needed to document their understandings of what should happen if one of them wanted to leave the business or if one of them died.
One of the brothers died unexpectedly leaving behind his wife and young family who depended upon the income from the company. His shares in the company passed to his wife under his will.
From the wife’s viewpoint she had no continuing right to income from the business nor any clear right to sell the shares.
From the viewpoint of the surviving brothers and the company, they lost the value of their brother’s personal input on a day-to-day basis, felt pressured by the needs of the family of the deceased but did not have any right to buy the deceased’s shares in the company.
In summary, a very unsatisfactory situation from both perspectives that could easily have been avoided with an appropriate Shareholders Agreement.
A simple Shareholders Agreement could have made provision for what should happen in the event of one of the shareholders dying and how the interest of that deceased person would be valued. That agreement should have been negotiated at a time when the issues from all parties perspectives would have been exactly the same whereas negotiations ultimately took place when interests were in conflict and when emotions were quite raw.
The end result was quite a hostile negotiation which left both the surviving brothers and the wife of the deceased dissatisfied with the result from a business perspective and ruined the once close relationships between the families.
At Everingham Solomons we help businesses and families to avoid these types of problems on a daily basis because Helping You is Our Business.
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