Chong, Tan and Ng are directors and equal shareholders of a private limited company which manufactures condoms for the local and overseas market for the past 20 years. Due to their hard work combined with the trust, tolerance and understanding for each other all these years, the business is now worth RM10 Million. The operation of the business was running smoothly until Tan died suddenly in a road accident. Soon after Tan’s funeral was over, his family found out that he did not have a Will. So his family applied for the Letter of Administration (L.A.) to unlock his frozen assets and one of his assets is the shares held by Tan in this private limited company.
Under L.A., as Tan is survived by his wife and son, ⅓ of his assets, including the company shares, would be given to his wife and ⅔ to his son. However, Tan’s wife informed Chong and Ng that she would renounce her ⅓ entitlement and give it to her son Jerry who has just graduated from university. At the same time she also told Chong and Ng that it was always Tan’s wish that Jerry can join the business if anything were to happen to him. Upon hearing this, Chong and Ng accepted Jerry as the new Director of the Company as a form of gratitude to Tan’s contribution. After all, they were also thinking on the lines of injecting new blood into the business. Not long after this was settled, Jerry became very aggressive and nasty towards Chong and Ng. There were endless quarrels between them over every aspect of management matters in the Company; so much so that Chong and Ng felt like they were sleeping with the enemy. Due to this, the company’s business began to deteriorate. At this point, Chong and Ng regretted not having put in place some form of business protection plan to avoid such problems.
To solve the above problems, shareholders like Chong, Tan and Ng could set up a business value protection plan by first preparing a Buy-Sell or Cross Option Agreement where the terms of the agreement covers the agreed price to buy and sell the shares, events where a sale between themselves is to take place, arrangement to fund the purchase and mode of payment. The common triggering events in such an arrangement are death and total permanent disability. To ensure that this agreement is executed quickly and effective, it includes the usage of Power of Attorney, Trust Deeds and life insurance policies to provide funding for the purchase. The Power of Attorney authorises Rockwills Trustee Bhd, being the trustee of the arrangement, to transfer the shares to the purchasing shareholders when a sale and purchase is to be made in the future. The Trust Deeds by all shareholders provide instructions to Rockwills Trustee Bhd on the distribution instruction of the sale proceeds received by the exiting shareholder. The usage of life insurance policy provides the cheapest form of funding to purchase the shares of exiting shareholders. The idea of this plan is to transfer the shares of the deceased shareholder to the surviving shareholder without any hassle and at the same time the family of the exiting shareholder receives a fair and reasonable value for the shares as agreed upon in the agreement. This would avoid interference from third party in the business. The reason for choosing a Trustee company like Rockwills Trustee Bhd to be the Trustee is because it has the expertise, impartiality, professionalism and perpetual existence.
Peter Lee is an Associate Estate Planning Practitioner (Wills & Trust) with Rockwills International Group. He is also an Islamic Estate Planner providing Wills & Trust services for Muslims. He is based in Ipoh and can be reached at: 012-5078825/05-2554853 or [email protected]