The Minority Shareholder Trap

You and your three friends start up a business. It takes off and, on the advice of your accountant, the four of you form a limited company. Each of you has 25% of the shares. You are a minority shareholder, but that doesn’t both you. Why should it? The business has grown and is now worth £1m. In your mind, your shares are therefore worth £250,000.

You probably haven’t thought about it but, if asked, you expect that on your death, your wife will get your 25% shareholding. She will need money, not shares, but you expect that she will be able to sell the shares for £250,000.

It doesn’t work like that.

Even if you have made a Will and your wife inherits your shares, the chances are she will not be able to sell them at all. If she can sell them, she will probably get no more than a fraction of their notional value.

The only way to guarantee that your widow can sell your minority shareholding and get full value for it, is for you and the other shareholders to enter into an insurance-backed cross-option agreement.

If the job is done properly, your widow will get her £250,000 after your death with no fuss or stress and it will be insulated from the 40% Inheritance Tax charge when she dies and, indeed, for at least another generation after that.

Now, isn’t securing that peace of mind worth a visit to a solicitor?

If this situation sounds familiar or just to find out more, ask Michael Cutler, the author of this article.

Michael Cutler has been a solicitor for over 35 years and was admitted in 1995 to membership of the Society of Trust and Estate Practitioners (‘STEP’), the international, cross-professional specialist body for the most skilled and experienced in this field.

Come and talk to us.

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This post was written by Colemans Solicitors LLP