November 21st, 2014
Protection is Key
Imagine the scenario; your first day at university, you meet another fresher equally as nervous as you and a friendship sparks which deepens over the course of early morning seminars, mind-numbing lectures, vodka nights and fraught relationships.
Suddenly three years have passed and the big wide world beckons to you both. A few years are spent in humdrum jobs until you both realise that you dream of bigger things. You decide to pool your collective talents and work together in your own business as partners. Your hard work, determination and tenacity mean that your business is successful and grows beyond all your hopes. You are both able to enjoy the fruits of your success, providing for your loved ones and giving security to your children.
Then one day, life strikes a bitter blow and your friend and your business partner sadly passes away. Your life is thrown into turmoil and the future of your business becomes uncertain. Not only do you lose a friend but you also face the prospect of losing your business.
At such difficult times there is a clear need to protect your business plus the loved ones of your deceased partner. By undertaking proper succession planning, you can achieve this.
For example you can consider Key Person Insurance, which is designed to pay out a lump sum on the death of the insured key person, during the term of the policy. It is paid as a lump sum and could significantly help your business to recover from the loss of such an integral person. The proceeds can be used to help replace lost profit or finding and hiring a replacement.
In addition, serious consideration should be given to the partners/shareholders of a business entering into an agreement and for life insurance policies to be put in place by all partners/shareholders. The agreement and the insurance policies will be structured to allow for a lump sum to be paid out in the event of death of one of the partners/shareholders. This lump sum can be used to fund the purchase of the deceased’s share in the business.
The agreement should provide a mechanism for determining the price payable for the partner’s/shareholder’s share. By determining these issues in advance, the potential for disputes between family members and surviving partners/shareholders at a difficult time after a death is greatly minimised.
Ultimately, proper planning ensures that the business is left in the hands of those who are committed and able to work towards its long term goals, while the deceased’s family is properly provided for.
We all hope that the unexpected is not going to happen to us, but life unfortunately can often throw obstacles in our way. Appropriate planning can lessen some of these burdens and help to cushion us through the difficult times.
Prosser Knowles Associates Limited can review your business protection needs and provide you with reasoned expert advice to protect both your business and your loved ones.
For further information please click here to request a call back from one of our advisers.