This deals with protecting your business from the adverse financial effects of the death of a key person, partner, member or shareholder. Business protection can be especially important to smaller businesses whose reliance on key individuals for profit may be greater than large corporations.
This is designed to deal with protecting the co-owners in the event of the death of one of the partners, members or shareholding directors. Many small yet successful businesses operate as a partnership of two or more individuals, each one of which often brings a unique and valuable skill to the table.
If one of the partners, members or shareholders dies, their share of the partnership, limited liability partnership (LLP) or company passes on to their estate. Technically, if the business is a partnership, the partnership may be dissolved, which may not be convenient for the surviving partners. If the business is a limited company, the surviving beneficiaries of the estate may inherit the deceased's shares, and, in so doing, own part of and possibly gain a controlling influence over the remaining business, but without necessarily having the knowledge or skills to contribute. There are similar issues for an LLP, where the surviving beneficiaries of the estate may inherit the deceased member's share of the business.
It is often in the interest of all parties to put in place an agreement that allows the surviving partners, members or shareholders to 'buy out' the interest of the deceased partner, member or shareholder. Each party agrees beforehand the value of their share and a combination of policies and legal documents are put in place to ensure that in the event of a partner's, member's or shareholder's death, the remaining co-owners have a sum in place to buy out the family of the deceased. Such an arrangement can provide the deceased's heirs with a cash lump sum equivalent to their inherited share value, whilst returning ownership and control of the business to the surviving partners, members or shareholders. There are a number of ways of doing this, including buy and sell agreements, and cross option agreements. The best option will depend upon your partnership's, LLP's or company's individual circumstances.
Key Person insurance is used to inject a lump sum of cash into a business in the event of the loss of a 'key person'. A key person may be a top salesperson, or a key designer in a design company etc, - someone whose death would have a direct and adverse effect on the company's profits. The usual solution is a term assurance policy.
Please contact us should you require any further advice or information in this respect.
Hays Financial Centre Ltd is an appointed representative of Quilter Financial Services Limited and Quilter Mortgage Planning Limited, which are authorised and regulated by the Financial Conduct Authority. Quilter Financial Services Limited and Quilter Mortgage Planning Limited are entered on the FCA register (https://register.fca.org.uk/s/) under reference 440703 and 440718.
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