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Half of Small Business Owners have not made a Will

A recent report has revealed that more than half of Britain's small business owners have left no instructions in their Will or made any special arrangements regarding shares.

The new 'State of the Nation's SMEs' report saw Legal & General uncover the statistics its survey of over 800 small and medium-sized businesses (SMEs). As well as the 51% omitting instructions relating to shares, only 41% of companies had a shareholders’ agreement and 33% had not looked at their arrangements at all since the business was launched.

Richard Kateley, Head of Intermediary Development at Legal & General, said: "For those established SMEs that have a presence in their chosen market, the death of a business owner can be hugely significant should there be no plan in place or an arrangement regarding company shares.

“This could lead not only to shares being tied up in probate, paralysing an SME’s operations if this was a majority share, but could see the beneficiaries of these shares becoming involved in the business, whether or not they have any aptitude. Or, in the worst-case scenario, selling those shares to a competitor meaning the surviving owners losing control of their business.”

Just over a quarter of shareholders said they would buy the shares left following the death of a fellow shareholder, with over half stating they would have to rely on their personal wealth to do this. 21% said they thought their beneficiaries would inherit and become active in the business, while 16% said they would consider selling their shares to a third party.

Share protection insurance, which could allow a business to buy back the shares through a lump-sum pay-out, avoiding the impact of shares being tied up in probate isn’t in place for many smaller companies. The survey found that 36% of SMEs with a worth of over £5 million did not have share protection insurance in place.

Fewer than two in every five people surveyed had considered how a life policy could help, something that Kateley believes is vital:

"Many business owners see their business as a way to fund their retirement. The death of an owner could not only put their family's financial wellbeing at risk, but equally their fellow owners due to the impact on the business. A simple Shareholder Protection agreement can help to protect the owners from a situation like this, as well as help the business stay in the right hands and flourish.

He urged advisers and solicitors with a client that own established SMEs to speak about the risks of leaving shares unprotected. “Whether they need to consider revising their current arrangements, or implement a protection plan to help them buy back shares, you're well positioned to provide advice should the worst happen.”

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