Businesses may not have the need for key person or liability protection, however every good succession business plan should have considered what would happen on the death or critical illness of an owner.

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This succession business plan will protect the shareholders and partners, their families, their employees and ultimately the business.

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So what does transferring shares look like upon death of a shareholder or partner.

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There are three options:

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1. Automatic Accrual - This is where the memoranda or articles of association states that, upon the death of a shareholder, their share will be redistributed automatically to the remaining shareholders. Sometimes, the percentage share split is  also noted, otherwise it is just a redistribution. Obviously the family want to be compensated, so a life policy is set up for the benefit of the family (under trust or beneficiary nomination).

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2. Double Option Agreement - This is where either party has various options, usually with a time frame around the option. So the agreement could say that the company has the right to buy the shares and require the sale, within 60 days of death. Alternatively,  it could be the family that has the right to require the company to buy the shares, or even a mixture of both.

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3. Buy Back Agreement - This is similar to a double option agreement, however  a buy back solution states that the shares will be bought  and the family must sell them. Again a life insurance  policy should be in place to compensate the family.