I run a business with friends. What happens to my share of the business if I can no longer work?

Article

10 March, 2009

I run a business with friends. What happens to my share of the business if I can no longer work or decide it's time to leave? I assume my family will benefit from the value of the business?

What happens to your shares in a business will depend on what documents were written and signed with your co-owners at the outset. If your business is a partnership, you may have a partnership agreement. If you are a company, you may have 'Articles of Association' which could indicate what happens when one shareholder is to leave the business. You may also have a shareholders' agreement that states what would happen. If any of these documents are in place, you will legally have to abide by what they say.

If you don't have a shareholders' or partnership agreement, it is unlikely that there will be a legal obligation on the other business owners to buy your share or to allow it to pass to your family. In the event that you fall ill and can't work any more or if you want to leave or, worst case, you should die, it is unlikely that you (or your representatives following your death) can force your fellow business owners to fulfil what you had intended. For example, if you expect on your death that your family will be able to receive the value of your shares, that might not be the case. The shares could remain stuck in your estate with no available buyer - without a legal agreement forcing them, you can't oblige another owner to buy out your share.

Our advice

The owners of the business should sit down together and plan what will happen during the lifetime of the business and have appropriate agreements put into place to reflect what is decided.

If these issues aren't dealt with, unexpected results can occur. It's not uncommon for an owner to die, leaving their share of the business to a family member who the other business owners just can't work with! Think about it, who will your partners leave the business to if they die? Wouldn't you rather have the first option? A shareholders' or partnership agreement can cover all these things so you can feel secure about your future and the future of your business.

For further information please contact the Business Law Solicitors at Forbes on freephone 0800 975 2463 or by email today.

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