Ownership Transition: A Tailored Approach.
There are many options to consider when it comes to succession planning. Soliciting the help of a Commercial lawyer is highly recommended to reach the outcome that best suits your needs.
The following is just one such scenario on business ownership and the buying of shares.
Jack is in his late 50’s and has owned his business for over 30 years. With grandchildren on the way, he is wanting to slowly step back from his business and officially retire in about five years' time. Craig, a senior employee, has been with the company for over 10 years and is Jack’s most valuable employee. While Craig has an interest in buying the company, he is currently not in the financial position to do so.
After some discussion, they come to an agreement that Jack will sell the shares in the company to Craig over a period of time. Jack’s lawyer prepared a sale and purchase agreement to transfer the first 50% of the company shares to Craig. The agreement outlined details such as the exact percentage of the company being transferred, the purchase price and certain conditions which must be satisfied before the agreement can be made unconditional, such as finance.
Craig and Jack have worked together for a long time but have never owned a business together.
Jack's lawyer recommended that they also enter into a shareholders' agreement to record how the company should be run, what happens if one of them wants to sell shares, and what happens if they have a dispute.
Because Craig doesn’t have access to funding to purchase the full 50% of the shares immediately, Jack agreed to lend him the money, allowing Craig to pay off the purchase price over a period of five years. Craig will repay the money by using the dividends that would have otherwise been paid to him from the earnings on the shares that he owns. This loan is recorded in a loan agreement, and as security for the loan, Jack will take security over Craig's shares. This means that if for any reason Craig cannot repay the loan, Jack would be able to take the shares back.
While the scenario above is common within commercial law, all businesses and ownership transition plans are unique.
Therefore, it is important to seek legal advice for your own situation.
Whether you are looking to transition shares to new ownership or purchase shares in the company you work for, get in touch, and we can help you put a plan in place that suits your needs.
To learn more about buying and selling shares in a business, click here.
If you feel you could use some specialist commercial advice, don’t hesitate to contact the Commercial Team.
