Martin Ward, an associate director of Amicus Insurance Solutions, outlines an aspect of insurance that is often overlooked – protecting the ownership of the business.
When a business owner or partner dies, in addition to the obvious sadness and everyday problems associated with the loss of a driving force, companies often overlook the destabilising effect such a loss can have on the business.
When an owner/partner dies, their stake in the business is likely to pass directly to their family. If the owner/partner was a majority shareholder, the remaining owners could lose control of some or all of the business and have to work with the family of a former owner, which can be stressful for both parties.
Whoever inherits a part of the business may choose to be a silent partner, but there is no guarantee. Some will want a more active role and may have different ideas about which direction the firm should be taking. Another possibility is that the beneficiary may want to sell their stake. However, if the remaining owners can’t find the funds to buy this shareholding, the stake could be sold to a competitor or not sold at all.
The ideal solution is often for the remaining owners to buy back the shares, giving the family a cash sum while ensuring they retain control of the business. The question is, do they have, or will they be able to raise, the funds to do this? This is where Share Protection insurance can help, which provides a cash payout to buy back shares.
There are two parts to this insurance. A ‘life insurance’ policy, which will pay out the value of their shareholding on the death of one of the owners, and a ‘legal agreement’, which sets out when and how these shares will be bought back and at what price.
These simple steps provide the business and its owners with certainty at the worst of times, ensuring that the beneficiaries receive the cash value they are entitled to and the ownership of the business is protected.
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