BUSINESS OWNERS AND CO-OWNERS
Are you the shareholder of a Private limited company (Sdn Bhd) ?
If YES, then MUST READ on...
Unlike Public listed companies, Private limited companies have NO ready open market from which their shareholders can readily sell their shares.
So the very FIRST challenge is to come up with a valuation of the company so that their shares can be priced.
SECONDLY, even if a valuation were to be determined and the existing shareholders want to buy the shares, where can they find the FUNDING?
THIRDLY, the shareholders MUST have a BUY - SELL agreement whereby should anyone of the shareholders want to EXIT, the existing shareholders must have the first right of refusal. Without this, many unwanted potential problems can arise:-
1) If the shareholder dies unexpectedly, the shares of the deceased will go to the deceased named beneficiary in his/her will. If the deceased shareholder has NO will, then the shares are effectively frozen and no transaction can take place until the deceased family settles the issue of who will inherit the shares.
2) After the above is settled, then the new shareholder may not want to be in the company and wants to sell back to the existing. Herein lies the problem of what valuation and whether the existing shareholders have the cash flow to buy back.
3) If the new shareholder does want to be involved in the company then it would be a question of whether he or she can fit in.
SOLUTION
Do a Buy Sell Agreement among the shareholders, agree on a METHOD of valuation. Do a Trust Deed, Buy life insurance on the shareholders. (Note:- There are several ways to do this.)
If and when the triggering event happens, the family of the deceased gets the insurance monies and the remaining shareholders get the shares of the deceased.
For more details or explanation on how to get about it, do contact Francis Poon ( see Home Page)
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