This document discusses preparing businesses for change through "living wills" such as shareholders agreements, partnership agreements, and family charters. It provides an overview of the key areas these agreements should cover for different business structures. These agreements are recommended to clarify roles and expectations for shareholders, partners, and family members involved in the business to avoid legal issues if changes occur. The document also summarizes employer stock option schemes (EMIs) and their tax benefits for businesses and employees, and outlines factors to consider when converting a partnership to a limited liability partnership (LLP) status.

1. A ‘living Will’ for your business:
preparing for change
Michelle Harte, Associate
Corporate Finance team
michelle.harte@bllaw.co.uk

2. Why bother?
 It makes good business sense.
 If you don’t – bigger legal fees!

3. Types of ‘living Wills’ for businesses
 Shareholders’ agreement
 Partnership agreement
 Limited liability partnership agreement
 Family charters

4. Shareholders’ Agreement (SHA)
 Overlap with Articles of Association.
 Different types of SHA and when you need
them.
 What they cover:
– Management and operation of company.
– Regulates relationship between the
shareholders and company.
– Provides a framework for managing expectations

5. Main areas:
 Board composition.
 Decision-making at board and shareholder level.
 Minority protection.
 Deadlock and dispute resolution.
 Distribution of profits.
 Issue and transfer of shares.
 Commitment of management team and shareholders.
 Incentives to management.
 Mission statement / exit strategy.
 Restrictive covenants.

6. Partnership Agreements
 No legal requirement to have one but…
STRONGLY ADVISABLE!
 Reasons why

7. Main areas:
 Capital.
 Partnership property.
 Profits and losses.
 Decision-making.
 Internal governance.
 Commitment of partners.
– duties, powers, restrictions, annual and other leave
 Retirement, death, suspension and expulsion.
 New partners.
 Dissolution.

8. Limited Liability Partnership Agreements
 Again, no legal requirement but…
– STRONGLY ADVISED!
 Reasons why
 Main areas covered

9. Family Charters
 Family mission statement.
 Not just for the business owners.
 Use in conjunction with other business
agreements / ‘living Wills’.

10. Main areas:
 Family goals.
 Ethical considerations.
 Governance.
 Succession.
 Ownership of and sale of family shares.
 Employment of family.
 Communication between management and family.
 Dispute resolution.
 Support to other family members.

11. What you can take away from this
 Good business reasons to put a business ‘Will’ in
place.
 Watch out for businesses growing, converting to a
different form, looking for investors, thinking about
entering a joint venture.
 Client benefits
– Reason for regular client contact.
– 360° service to clients.
– Local and readily available expert legal advice on
hand.

12. EMI Scheme
Kathy Hills, Solicitor
Corporate Tax team
kathy.hills@bllaw.co.uk

13. Why?
Employer:
 motivation
 cash Flow
 flexible
 Control
Employee:
 low risk
 tax

14. Qualifying Companies
The company must:
 be independent;
 have gross assets less than £30m;
 have a UK presence;
 be trading; and
 have less than 250 employees.
The aggregate limit of unexercised options in the
company must not be more than £3m.

15. Qualifying Employee
The employee must:
 meet the working time requirement; and
 not have a material interest in the company.
The maximum value of options for each employee is
£250,000 in any 3 year period (only the excess over
£250k is disqualified from EMI status).

16. The Options
The options:
 must be exercised within a 10 year period from the
date of grant;
 must not be over shares which are redeemable or
convertible;
 the exercise price should be fixed at the date of grant;
and
 the grant must be notified to HMRC within 92 days of
the grant.

17. Tax
 There is no charge to income tax/NICs on the grant
of an option.
 No tax/NICs charge on exercise if exercise price is
the same as the market value (on grant).
 Once exercised, the exercise price becomes CGT
base cost.
 No minimum holding required to qualify for
Entrepreneur's Relief on a sale.
 The ownership period now starts to be counted from
the date of grant of the option and not the acquisition
of the shares.

18. Disqualifying Events
 Events relating to the company.
 Events relating to the employee.
 Other disqualifying events.

19. Exercise
 ‘Exit only'
 Immediate Exercise
 Single Vesting
 Vesting in Stages
 Vesting Subject to Performance Conditions

20. Points to Remember
 Shares must be issued in the Topco.
 A sub-division of shares may be necessary.
 Options must be notified within 92 days of the date of
grant – otherwise the option scheme does not qualify
under EMI.
 For exit-only options – there should be flexibility for a
cashless exercise within the scheme rules.
 Some changes amount to the grant of a new option
thus triggering a new valuation date.

21. LLP Conversion – is it for you?
Michelle Harte, Associate
Corporate Finance team
michelle.harte@bllaw.co.uk

22. What is a LLP?
 New (ish) form of corporate entity.
 More like a ltd co than a partnership?
 Formal incorporation process.

23. Limited Liability Partnership Agreement
 Strongly advised!
 Reasons why
– Avoid default provisions.
– Regulate your business and the relationship
between the business owners (members).

24. Converting to a LLP
 First steps
– Liaise with advisors re: suitability for conversion.
– Live an overview of the conversion process.
– Advise on change in status.
– Review existing terms of business.

25. The legal process
 Incorporate a LLP
 Transfer business and assets
– third party consents
– TUPE
– property
– tax considerations
 Draft the LLPA

26. Non-legal considerations
 Notification to third parties
 Insurance
 Annuitants
 Update website / marketing materials / engagement
letters
 Pre-order new stationary / signage
 Timing and timetable

27. Why use Blake Lapthorn?
 Fixed fee package for conversion.
 Transparent pricing for ‘extras’.
 Meet with your clients to have initial talk about
conversion process for free.
 Locally based and readily available legal expertise in
this area.
 We have acted for some of you already!