Monday, 21st August 2017
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The risks

What would happen to your business in the case of an unexpected and dramatic event such as the death of one of the owners or directors?

Who would shares be transferred to in the case of death?

  • How much control would be lost?
  • What happens to the business in the case of critical illness?
  • How would the value of the business (and therefore the investor’s asset) be affected?
  • What action would dependents of the owners take?

 Should this happen, is your business protected?

It is common for directors to focus on growing the business, staying competitive and dealing with economic risks.  Many, however, do not consider the likelihood of unexpected and dramatic personal circumstances and how these might impact on the business – and indeed their families. These risks are real and cannot be ignored.

first pic. PNGSource: Assured Lives mortality Table AM8

 

 

Shareholder Protection

Executive cover for private limited companies

A private limited company is owned by shareholders and run by directors. These shareholders and directors could be the same people, especially in the case of family and small businesses.

The other shareholders will ideally want to keep control of the deceased shareholders shares.  But the widow can technically sell them to anyone, even a competitor. If the shares are fully paid-up, then the new holding must be accepted by the surviving shareholder(s).

Critical Illness Risks

pic 2Source: The National Institute of Critical Illnesses

 

Critical illnesses such as a heart attack or the development of cancer can have an enormous impact on the company, the person affected, and their family.

Should a shareholder or partner suffer from a critical illness, they may not be able or willing to work at all or at the same level.

How would the company deal with a director who could no longer perform?

  • How might the director provide for himself and his family in such a situation?
  • Would the company expect the director to sell their shares?
  • Would the director expect them to purchase the shares at a certain value?

The answers to these questions are of crucial importance.

It could be a disastrous error indeed for both parties just assumes that the other would act as they expect. Drafting a written agreement while all is well is essential.

The average age for developing a critical illness?  Forty three years old.

pic 4Study by Dr Freddie Bray, The Lancet Oncology, May 2012

 Third Party funding

pic 3

Investing in the small to medium size enterprises (SMEs) can be a considerable risk as often the SME has few physical assets to match the investment. Essentially the investor is investing in a person, their idea and ability.

In other words, intangible assets of the firm.

The investor must therefore have great faith in the business model and the capabilities of the key people within the firm. Should one of these key people pass away or become seriously ill, the value of the firm (and therefore the value of the investment) falls considerably and may be wiped out completely.

  • If the key entrepreneur passes away, could an investor realise their investment?
  • If a key person suffers a serious illness and the company’s value falls, could the investor be compensated, or would they simply have to accept the loss?

Business protection provision, in the form of a written agreement and corresponding life assurance contracts, can therefore provide considerable comfort and reassurance to such investors.

Therefore such a plan offers an additional reason for the investor to choose the venture over its competitors.

The solution? Meyado can structure a comprehensive plan to ensure that your business is prepared for unexpected events such as these.

Contact us now to see exactly how we can help.