Meet Sophie, Sophie is an architect who wants to open up her own business. However she hasn’t got the capital required. But Robert and his wife Debbie they want to help Sophie. So they decide to become business partners. Soon after they decide to save money by quickly downloading a free shareholders agreement without obtaining advice from a lawyer.
Fast forward a few years and out of the blue Robert is involved in a motor vehicle accident and tragically loses his life. Robert’s wife Debbie is devastated and inevitably Sophie is required to pay out Robert’s share of the business to Debbie. Unfortunately the agreement they hastily downloaded did not contemplate the cash flow implications of the unexpected death of a shareholder. Unless Sophie can quickly come up with the funds necessary to buy Roberts shares she will have to close the business.
Let’s go back a few years. Instead of downloading a free agreement it is decided that they don’t want to risk their business and future just to save a few bucks. Now instead they seek proper legal advice from a lawyer who alerts them too many potential issues including the unexpected death of a shareholder. And they instruct the lawyer to draft a shareholders agreement which contemplates and provides sound commercial solutions to these issues.
Fast forward a few years when Robert loses his life both Sophie and Roberts wife Debbie are able to rely on a clause in the shareholders agreement. Which provides a clear and agreed-upon process for Sophie to acquire and Debbie to be paid for Roberts shares. The clause involved Robert shares being purchased using the proceeds of a life insurance policy held in Robert’s name their lawyers carefully drafted. Agreement meant the insurance proceeds were able to pay Debbie for Robert’s shares without any impact to Sophie’s cashflow.
In the end they were right to have their agreement drafted by a professional and experienced lawyer. As doing so in short Debbie had the funds required to support her family. It maintained the relationship between Debbie and Sophie and it allowed Sophie to keep the business open.