Your Life: Starting and Running a Business

Starting a business can be confusing, overwhelming and stressful, but it doesn’t have to be.

Our experts help with all aspects of business ownership, from formation or purchase, through to a sale or dissolution.

We know that, very often, business owners’ personal circumstances also need to be taken into consideration. Our business experts also work closely with experts in other teams to ensure that your business is protected in the event of marriage, divorce and death.

We can help with:

Passing your business interests to your children
Protecting your business on divorce
Protecting your business on death
Business advice
Business investments
Commercial contracts
Company formations
Company sales, acquisitions and mergers
Company secretarial services
Corporate governance
Franchising
Joint ventures, partnerships and shareholder agreements
Starting a company

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Frequently Asked Questions

Can I have a share of my spouse’s company on divorce?

All assets which belong to each spouse will form part of the “pot” that is available for distribution on divorce. Whilst it is sensible to resolve matters without the involvement of the court if possible, it is sensible to consider the approach of the court and to use that as a “benchmark” for voluntary discussions.

Where possible, the court will try to avoid a situation whereby ex-spouses continue to own and manage a company together. Even where couples have managed to retain a good relationship post-separation the court’s general approach is that it is in neither spouse’s interests to continue to be “tied” to their ex if possible.

The court therefore tries to leave one spouse with the business, and ensure that the other receives a fair share of other assets. Where it is unlikely that the business will be sold, the court will avoid a situation whereby one party is left with the business and no other assets, but in reality there may not be sufficient other assets for that person to receive them in addition to their share in the business.

Where one spouse is to retain the business, it is generally advisable for that interest to be independently and expertly valued. An expert valuation would take into account any effect on the value of the spouse’s interest because it is a minority interest, any restrictions on the sale of shares in a shareholders agreement, and how any money might be extracted from the business to pay to the other spouse.

It may be that the person who continues to own the business has to pay ongoing maintenance to the other, and that may include income earned or likely to be earned from the business in future.

I want to give my limited company to my adult children. What do I need to think about?

If you wish to pass your limited company on to your adult children by gifting them your shares or the assets in the company, there are various things to consider:

1. When do you plan to pass the business onto your children? It is important to ensure that you leave sufficient time to handover the business, train your successor(s) and plan the most tax efficient exit with your advisors.

2. How many shareholders are there in the business? How will ownership of the business be shared between your children and any other owners/shareholders?

3. What do the Company’s Articles of Association and any Shareholders’ Agreement permit in terms of a share transfer? For example, you may be required to offer your shares to existing shareholders before you can offer them to outsider shareholders.

4. You may wish to draft a Shareholders’ Agreement (if there’s not one in place) if gifting to more than one child to help clarify how the business is to be run and to minimise disputes in the event of a conflict.

5. What process needs to be followed to appoint a successor? Directors can usually be nominated by the board of directors. The mechanism will depend on the company's Articles of Association, and any Shareholders' Agreement. If you own a majority of the shares and you control the board, you will be able to nominate whoever you like as your successor.

6. Who will manage the business, including whether you will have any future role in management?

7. Do you want to retain any investment in the business?

8. Who should be involved in succession planning? It's a good idea to involve everyone who has an interest in the business, including any other shareholders and key employees. This way you can understand any concerns and overcome them before appointing your successor(s).

9. Do you want to realise any capital from the business and does the business need to raise additional finance to allow for this? Options can include selling shares to existing or new investors, selling shares back to the company, paying dividends to shareholders, or making payments into your pension fund. You may wish to increase business borrowings to fund these payments. You will need to take advice on the tax consequences of the different options in your specific circumstances.

10. How can transfers of shares or assets can be arranged tax-efficiently?

Starting and running a business: your Will and Lasting Power of Attorney

If you own a business, it is important to consider what you would want to happen to this on your death, and to ensure that this is reflected in your Will.

If your Will does not mention the business specifically, the business will pass along with your other assets, subject to any prior agreement such as a Shareholders Agreement that you may have in place, and so you should consider whether this is what you would want to happen. You should also consider the tax consequences of any gift, for example there may be tax advantages in not gifting the company directly to your spouse, which we can review with you.

It would be the responsibility of your Executors to manage the business for your estate until the administration of your estate is dealt with, and so you should review who you would like to take on this role.

We would also recommend considering who could run the business for you if you were incapacitated during your lifetime by illness or accident. If you have a Lasting Power of Attorney in place then your attorneys can undertake tasks which you would normally do for the business, such as accessing bank accounts. If you do not have a Lasting Power of Attorney in place this could cause problems for the business, and if you do have an attorney appointed it is worth considering whether your attorneys appointed to deal with your general affairs are also the people that you would want dealing with your business. If not, then you can have a Lasting Power of Attorney limited only to your business affairs, so please do contact us if you would like to discuss this further.

You should also ensure that you are aware of the terms of any Shareholders Agreements, and what would happen on the death of you or your business partner in order to ensure that the interests of your business are protected as you would want them to be.

What is a shareholders’ agreement and do I need one?

A shareholders' agreement is an agreement entered into between all or some of the shareholders in a company. It regulates the relationship between the shareholders, the management of the company, ownership of the shares and the protections offered to the shareholders.

When starting a company with more than one shareholder, it is advisable for the shareholders to enter into a shareholders’ agreement in order to regulate both the relationship between them and the way in which the business is to be run.

There are several reasons why entering into a shareholders’ agreement is a sensible thing to do:

Regulation of Relationships
It acts as a form of ‘pre-nuptial agreement’ between the shareholders, enabling them to formalise the approach that should be taken in the circumstance that their relationship turns sour, whilst their relationship is still strong. This will help the shareholders to ensure that a fair solution can be reached in the event that their relationship does break down.
Minority Shareholder Protection
It can assist with regulating the management of the company and offer minority shareholders protection. A Shareholders’ Agreement can specify that certain decisions require shareholder approval; it can state that this must be unanimous consent, or a 75% majority in specific circumstances involving major decisions of the company. This can be especially helpful for companies that have shareholders who are not also directors.
Majority Shareholder Protection
It can offer majority shareholders protection by including ‘drag along’ provisions. This allows the majority shareholders of a company to force the minority shareholders to sell their shares if an offer is made to buy the entire shareholding, so as to prevent the transaction falling through.
Dividend Policy
It can stipulate a dividend policy, which can assist with setting expectations about the amount of profit that will be distributed to shareholders and the amount that will be retained by the business.
Exit Strategy
It can provide for what will happen on death, illness, resignation, retirement or if someone is asked to leave the business. The shareholders will need to carefully consider how a departing shareholder’s share will be valued in the aforementioned circumstances.

Starting and Running a Business

Frequently Asked Questions

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