For owner managed businesses, the business owners will have a personal financial stake in the business. Following the death or serious illness of a shareholding director or partner, there are several problems. If shares pass to a shareholding director’s spouse or other immediate family, they could be an undesired business partner with powers within the business. It is almost certain that the co-owners will want the shares to retain full control of the business, and the family recipient will want cash for the shares. But where will purchase funds come from, how do surviving co-owners ensure that the business remains in their hands, and how can family recipients ensure that they are paid a fair value for their inherited shares?
Put simply, share protection is about placing the right money in the right hands at the right time. There are three core components of an effective share protection arrangement:
Of necessity, clients will need to refer to their tax and legal advisers.
The death or serious illness of a keyperson can have a serious detrimental impact on the ability of a business to continue trading effectively. Valuable skill sets and business relationships can be lost giving rise to a loss of gross profit for the business. In addition, it may be more difficult for the businesses to obtain credit and external investment. Where existing business financing arrangements are in place the loss of a keyperson and revenue may mean that the ability to service business loans could be severely impacted, and loan facilities could even be withdrawn. By insuring the keyperson, the business will receive funds to help it meet its ongoing business and loan obligations, continue trading, and have financial capacity to restructure the business as needed, including offering a ‘golden hello’ to attract an early replacement candidate.
We can advise on the most appropriate type of insurance contract, and obtain competitive ‘whole of market’ terms. On instruction we can then facilitate establishment of the insurance arrangements, and can provide specimen documentation.
For share protection clients must refer to their tax and legal advisers when structuring the agreement and other documentation, and we can liaise with these advisers as appropriate. We do not provide advice on the level of cover as this must be determined by tax and legal advisers or, for keyperson cover, the employer company or loan institution.
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In2Matrix (UK) Limited is a trading style of In2Planning Limited, registered in Scotland, registration number No SC181076. Registered office - 36 Church Street, Inverness, IV1 1EH.
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