Issues to consider to ensure your business is fully protected
Posted on 18th June 2018 by Anthony Bruchez, Independent Financial Adviser at Pareto Financial Planning
What happens if a business owner or shareholder dies suddenly?
There is a lot to be considered before a business finds itself in such a scenario. Fortunately, there are simple steps to be taken that can fundamentally change the outcome.
If you or a fellow business partner where to die have you thought about who you wish to own and run the company
- Does your surviving spouse wish for the capital or shares in the company?
- Does your surviving business partner want the surviving spouse to be part of the company? …Or, would they wish for full control?
- How will any surviving business partner raise the funds to buy the shares?
- Is there a Shareholder/Partnership agreement to allow the transaction to take place?
- When was the last time your company was valued?
These are all questions that need to be asked and addressed.
Much of the detail about succession planning and what actions you want to take place will be contained within your shareholders agreement but without the funds and mechanisms in place to action these plans a company can quickly find itself unable to function at this difficult time.
At Pareto, we can give advice on Shareholder/Partnership Insurance and Business Protection Insurance.
Both are designed to ensure that the period following a business partners’ death is as smooth and stress-free as possible, so the correct people receive the correct assets at the correct time. Most importantly the business can continue to operate entering new contracts and making strategic decisions.
Without appropriate available funds, the loss of a key shareholder could mean the other shareholders lose control of the business, even placing the business into liquidation depending on what the articles or partnership agreement states.
The surviving shareholders/partners may be unable to raise funds to purchase the necessary shares. Or it may be the case that a deceased shareholder’s dependents’ could end up with an unwanted shareholding in the business – a potentially unwanted responsibility at a time that couldn’t be worse. Crucially this shareholding is theirs and they can sell it to anyone they wish. We have seen people suddenly partnered with industry novices and even competitors as the grieving family wish simply to unload responsibility to whoever is available to purchase the shares.
Mitigating the uncertainty
The uncertainty can also have a negative impact on a business and its reputation. If a business is seen to be unstable, suppliers could withdraw their services, or the bank could call in an overdraft.
Having the right insurance in place will mean the deceased’s family will receive financial compensation in the event of their death and that the remaining shareholder will maintain control of the business they’ve worked so hard to create.
An insurance policy can also cover the event that a shareholder can’t work because of serious injury or illness – again the pay-out can help remaining shareholders raise the necessary funds to buy out their shareholding. Crucially in this scenario the process can only be actioned at the sick/injured owners’ request.
As business owners you will be familiar with the various types of insurance that you rely on to protect your business. Unfortunately, death and sickness are some of the most prevalent situations to affect a business – with the correct advice there are very simple cost-effective solutions to safeguard the future of your company.
To arrange a free business protection review please contact Anthony Bruchez on 0161 819 1311 – Ref: Caunce O’Hara or click here to arrange for a call back.
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