Business and Shareholder protection

Every business has key staff, vital to the running of the business. Many businesses recognise the need to insure their company property, equipment and fixed assets however, they continually overlook their most important assets.

Business and Shareholder protection

Every business has key staff, vital to the running of the business. Many businesses recognise the need to insure their company property, equipment and fixed assets however, they continually overlook their most important assets.

Key person insurance is designed to compensate a business for the financial loss brought about by the death or critical illness of a key employee, such as a company director. It can provide a valuable cash injection to the business to aid a potential loss of turnover and provide funds to replace the key person.

Share and partnership protection provides an agreement between shareholding directors or partners in a business, supported by life assurance to ensure that there are sufficient funds for the surviving directors/partners to purchase the shares. It is designed to ensure that control of the business is retained by the remaining partners or directors but the value of the deceased’s interest in the business is passed to their chosen beneficiaries in the most tax-efficient way.

If a shareholding director or partner were to die, the implications for your business could be serious. Not only would you lose their experience and expertise, but consider what might happen to their shares. The shares might pass to someone who has no knowledge or interest in your business. Or you may discover that you cannot afford to buy the shareholding. It is even possible that the person to whom the shares are passed then becomes a majority shareholder and so is in a position to sell the company.

The shareholding directors or partners in a business enter into an agreement that does not create a legally binding obligation on either party to buy or sell the shares but rather gives both parties an option to buy or sell, i.e. the survivor has the option to buy the shares of the deceased shareholder and the executors of the deceased shareholder have the option to sell those shares.

In either case it is the exercise of the option that creates a binding contract; there is no binding contract beforehand. This type of agreement is generally called a ‘cross-option’ agreement or a ‘double option’ agreement.

These are essential areas for partnerships or directors of private limited companies to explore.

Different forms of protection

Key person insurance – compensates your business up to a pre-agreed limit for the loss or unavoidable absence of crucial personnel, including the owner-manager. It is especially appropriate if your business depends on a few employees.

Critical illness cover – pays a sum of money to specific employees or the business owner in the event of a serious illness, such as a heart attack or stroke.

Income protection insurance – protects individuals by paying their salaries while they are unable to work.

Private health insurance – funds private healthcare for specific employees. As well as being an extra benefit of employment, it could help them to return to work more quickly after an illness by paying for rehabilitation treatment.

insurance which is based on an assessment of health of the applicant is unlikely to cover the applicant for previous or existing conditions. The applicant should refer to policy documentation and seek advice in order to understand what the policy does and does not cover before making an application.

For You

At Pembroke Consulting, we provide comprehensive financial planning services for private clients, whether you are saving for your first property or taking drawdown from your retirement funds.

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For Your Business

Our work at Pembroke Consulting brings us into contact with companies of all sizes across the UK. Our experienced team are able to offer complete advice to corporate clients, including their staff, from start-up to sale.

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For Tax Planning

Pembroke Consulting work closely with a team of Trustees, Chartered Tax Advisers and Chartered Accountants with broad industry experience and a proven track record in dealing with complex taxation.

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