Protecting your business assets
How much would it cost to replace your key staff?
If you run a business, whether a limited company or a partnership, or if you employ key staff crucial to its future success or survival, a premature death, disability or illness can have a serious impact. As for any other valuable asset, it makes sense to be insured against such a loss. If you, or any other important member of your business, were no longer able to contribute towards its success, what impact could this have? Consider these different situations.
Shareholding directors of a private limited company
The death or permanent disablement of a shareholding director could have a serious impact both on the future of your business and on your family. These are the main areas you should consider.
Majority shareholders The majority shareholders in a company may have important voting rights that directly affect the running of the company. In the event of a majority shareholder’s death, these rights would normally pass to the deceased’s dependants. This could affect the company in two ways:
The dependants now have the right to a say in the running of the company. But do they have the necessary skill and experience? And will they share the ambitions and objectives that the surviving shareholders have for the business?
The dependants might prefer to receive the value of the shares in cash. But who will buy them? Unless the other shareholders have sufficient liquid capital reserves, they may be sold to an outside – possibly hostile – third party, perhaps even a direct competitor.
Minority shareholders Generally, it is the voting rights attached to a shareholding in a private limited company that gives them their market value. Minority shareholdings may not have significant rights and so the shareholder’s dependants may inherit shares that are virtually worthless. The only likely buyers of such a holding would be the surviving directors, but they may be under no obligation to do so.
Key staff
The continued success of your business may be dependent on the special contribution made by a small number of ‘key’ men and women.
Your fellow directors will be regarded as key people. The death or disability of any of them could threaten the profitability of your business. Indeed, its very survival could be at stake.
Asset value
It is not easy to place a value on a person or to estimate the likely business losses incurred by their absence. Without the contribution generated by your key person, your business could face major difficulties. Even if they have a deputy, how long would it take for this person to become fully trained and effective?
Financial burden
The premature death of a key person is likely to cause an immediate requirement for cash, so life assurance should be a top priority.
However, it is not just the death of a key person that can create serious financial burdens for your business. Today, many serious illnesses, such as a heart attack, stroke and cancer, no longer necessarily result in death but may need lengthy periods of convalescence.
Levels and bases of, and reliefs from, taxation are subject to change.
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