Safeguarding your assets
As a shareholder, director or partner, you are used to making daily decisions to protect the future of your business: from employing the right staff to insuring assets against damage. But have you considered the most crucial type of protection – insurance against the death or critical illness of the company’s key people?
At Edgewater Associates, we provide effective financial planning advice to meet your family’s dreams and aspirations. We offer tailor made solutions to meet your investment objectives that will match your attitude to risk. Our service doesn’t end there. We provide regular financial reviews to ensure our advice is always relevant and appropriate. You can relax, safe in the knowledge that your finances are being effectively managed.
There are a number of ways we can help you to protect your business:
Key employee protection insures against the financial impact of the loss of skills, experience and contacts on the death or critical illness of a key person by providing a compensating cash injection to the business. It can also provide a regular income if the key employee is temporarily disabled and unable to work.
The level of insurance can be calculated under different bases, such as multiples of business profits or salaries of the key personnel, or even a proportion of the payroll cost, depending on the type and structure of the business.
This protection is designed to pay a pre-determined lump sum to the business on the death or critical illness of a key shareholder, both to help the remaining owners retain control of the business by providing capital to purchase the shares from the individual or their family and to ensure a fair price can be paid to those affected when it is most needed.
There are many questions that will need answering when deciding whether shareholder protection is a requirement for your business:
- Have you discussed the effect of the death of one of your fellow shareholders on the structure and ownership of the business?
- Do you have sufficient, readily-available assets to buy that person’s share of the business, or would their family like to remain involved?
- You may have a strong working relationship with your current colleagues, however, would you feel the same way working with their spouse, or their children?
- Would your family wish to remain involved in the business should anything happen to you, or would they prefer to sell the shares and release the capital?
- Would your family receive a realistic price from a third party if they were to sell them on, and is the marketability of the shares good in the instance of the business having lost a key decision maker?
- Do the company’s Articles of Association allow for a third party sale of shares, or are there specific restrictions on the transfer of shares which need to be considered?
If a leading partner dies or falls ill, the immediate concern will be to ensure that the business can continue to operate until a replacement can be found, or until the colleague returns to work. Cash flow can become a major headache; the correct cover can help the business stay afloat.
It is common for individuals to cover their liabilities to protect their families, such as by mortgage protection. However, there may be liabilities relating to the business that would have a negative impact on staff, their family members and the success of the business. It is possible that an existing loan might be called in upon the death of a key person to whom the offer of lending was made.
Edgewater Associates can help you to understand the implications of the information in your memorandum and articles of association, and to analyse the protection requirements of the business.