Partner Article

Mark Fergusson business lawyer at Maxwell Hodge

What’s your exit strategy? Protect the future of your business

Whether it’s simply retiring from a business or something more unexpected such as serious illness, it’s vital that successful business owners have an exit strategy to protect their business and their loved ones.

Business owners all too often bury their head in the sand and hope that when the time comes to leave a firm, a successor will magically appear with enough money to take over the business. This is almost never the case.

It is imperative from the outset that the partners/shareholders have in place an appropriate exit strategy in the event that disputes arise, there is a long term illness or death, or a partner wishes to retire.

A death or serious illness in particular can have severe consequences for any business with everything from loss of profit to commercial disputes and dissolution of partnerships.

A Partnership Deed/Shareholders Agreement (in conjunction with funding/life insurance arrangements) is designed to ensure that the family is properly cared for in a financial sense, and the business can continue to run smoothly.

In a partnership arrangement partners can make a binding agreement that a deceased partner’s estate will sell, and the surviving partner’s will buy the deceased partner’s share within a structured time scale. Alternatively they can go for a “cross option,” where the surviving partners have an option to require the deceased partner’s estate to sell and the estate has a corresponding option to require the surviving partners to buy within a specified period. Finally there is what is known as the “automatic accrual method.” This provides that the partnership will continue on the death of a partner with the deceased’s share passing automatically to the surviving partners. The basic idea is that the deceased partner is compensated for the automatic passing of his share to the remaining partners, by the payment to his estate of an assured sum.

In a Shareholder Agreement it’s a similar principal of buying and selling arrangements with the most popular being the cross option. Because the option does not create a binding sale it ensures business property relief for inheritance tax purposes remains available.

At Maxwell Hodge we strongly recommend more businesses prepare succession plans because no matter what the good will is in a firm, if the unexpected does happen it can throw businesses into disorder.

Legally binding agreements will ensure that the future of the business and the partners/those that inherit are protected.

For more information on succession planning contact Maxwell Hodge on 0151 227 4545 or visit maxwellhodge.co.uk

Maxwell Hodge has been shortlisted for the City of Liverpool business awards, Best Legal Firm of the Year, to vote for them to win visit www.downtownliverpoolinbusiness.com

This was posted in Bdaily's Members' News section by Dan Minchin .