Company shares - to have and to hold? - Business Works
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Company shares - to have and to hold?

by Theo Hoppen, Head of Family Law, MLP Law As the world's billionaires hold their breath ahead of what is expected to be the richest divorce settlement in history, Theo Hoppen, Head of Family Law at MLP Law advises on five things all business owners should do to protect their companies and employees from the potentially devastating effects of divorce settlements. You don't have to be worth $18 billion like Harold and Sue Ann Hamm to take steps to ensure your business survives if your marriage should breaks up.

A shareholding in a business would, in normal circumstances, be treated as part of the pot of joint property held by a married couple and therefore one of the things that needs to be counted in the fair distribution of assets upon divorce.

implications on directors, shareholders and employees

However, unlike a house or bank account, the division of a shareholding can have important legal implications, not just for the couple, but also for other directors, shareholders and employees.

In the Hamm's case, dividing up a 68% shareholding of a major oil company could lead to major disruption in business and will already be causing unwanted instability and uncertainty amongst staff, suppliers, investors and anyone else with an interest in the organisationís smooth running.

Preparing for divorce is therefore a sensible and pragmatic step for business owners to take. It is about good governance, not about trying to squirrel assets away from your partner's legal team.

Here are five steps to consider to insulate your business from divorce proceedings:

  1. Consider entering into a pre- or post-nuptial agreement with your spouse. These agreements can protect your shareholding in the event of a divorce. It is crucial that you obtain specialist legal advice to ensure that the agreement is upheld by the court on divorce.

  2. Consider entering into a shareholders' agreement. This is a confidential contract between the shareholders of a company that provides additional protection around share ownership. It can provide that on divorce a shareholder's spouse is not entitled to receive any shares in the company.

  3. Do not mix your business assets with your private assets. Keeping the business separate from your private wealth can help on divorce.

  4. Consider whether you want to involve your spouse in the business for tax purposes. Whilst this enables to you utilise tax reliefs, your spouse's involvement in the business may strengthen his or her claim on divorce.

  5. It can help if you share ownership of the business with outsiders. If there are non-family shareholders, then the court is less likely to take steps which would damage the livelihoods of the other shareholders eg. order a sale of the business or the transfer of shares to your spouse.

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