Legal Strategies for Succession Planning – Blending Family and Business
Legal Strategies for Succession Planning – Blending Family and Business. When a shareholder passes away, their shares, as part of their estate, must be addressed. Whether dictated by a will or governed by the Intestate Succession Act, the process can be complex. Careful planning is essential to avoid conflicts between a will, the Memorandum of Incorporation (MOI), and the Shareholders’ Agreement.
Understanding the Role of a WillUnder the Wills Act, a valid will enables shareholders to specify beneficiaries for their shares. Without a will, the Intestate Succession Act determines distribution, starting with the spouse and children.
Governing Documents: The MOI and Shareholders’ Agreement
The MOI and Shareholders’ Agreement often impose restrictions on share transfers, overriding a will. These include:
- Restrictions on Transfer: Beneficiaries may need to meet specific conditions set by the MOI or require board approval.
- Pre-Emptive Rights: Shares may need to be offered to existing shareholders before transferring outside the group.
- Forced Buyout: Agreements may require the company or remaining shareholders to purchase the shares, leaving the beneficiary with monetary proceeds instead.
Consequences of Misalignment
When a will contradicts the MOI or Shareholders’ Agreement, issues can arise:
- Void Transfer: Shares cannot be transferred if terms of governance documents are violated.
- Forced Sale: Shares may need to be sold to the company or remaining shareholders.
- Disputes: Conflicts between the estate and company may lead to legal action
Shareholders should ensure their wills align with the MOI and Shareholders’ Agreement to avoid complications and protect their estate and business interests. By addressing these matters proactively, shareholders can secure their legacy and safeguard the company’s stability.
