Share Protection
The value of protecting your company
- Shares may go to the deceased’s family, which has no interest in the business and would prefer a cash sum
- The company or other shareholders will want to retain control by buying lost shares - but may not have the resources to do so
- The shares may be taken over by someone who does not share the company’s objectives - and may even be a competitor
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Partnership or director share protection
A partnership protection policy provides funds upon the death – or critical illness – of a business partner or director, ensuring continuity of the business and providing security and protection for all. Without adequate funds or the proper agreements in place, a company may be unable to buy out a deceased partner’s share of the business, leaving any remaining dependants without an appropriate level of income replacement and the company with the risk of an inappropriate member of the deceased family taking control of their business interests. A lump sum would generally be needed to buy out their share and without adequate provisions, this could be costly both in terms of outlay and interest rates on urgent loan(s). If market conditions are unfavourable, these payments may have to be funded by liquidation of assets.
Security in an insecure world
By adding critical illness cover to this protection a business can afford to pay a sick partner or director, who is unable to carry on contributing to the profits of the business, a salary. If required, the policy would also provide capital to buy the sick partner out of the business.It can help ensure that your business can continue trading in these circumstances.
How does it work?
Each business partner or director takes out a life insurance policy on their own life for an amount equal to the value of their shareholding. The policy is placed in trust and benefits are payable to the surviving business partners or directors.
The policy ensures that:
• capital is available immediately for share purchase or to pay off specific loans or other debts
• control of the business remains where it is intended and ensures business continuity
• protection for dependants of the partners/directors.
It is normal that an agreement be drawn up by a solicitor to ensure that surviving partners are able to keep control of the business by giving them the right to buy or sell shares of any party who dies. For example, if one partner wants to sell the value of their partnership, the other partners must buy them.
We would always recommend that you seek legal advice for this agreement from someone who is familiar with your business and personal circumstances.
Ask yourself these questions?
* Does your business rely heavily on one or a few key individuals?
* Could your business survive without those individuals?
* What could go wrong if a director/partner were to die or be diagnosed with a serious illness?
* How would you retain control of the business?
* Do you have a written agreement in place as to what would happen?
If this has raised some questions for you, please contact us for a Free Business Health Check. Call us free 0800 043 6701
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Types of business protection
There are three main kinds of business protection:
- Key Person Protection - continuation planning
- Partner/Director Share Protection - succession planning
- Business Loan Protection
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