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BUSINESS PROTECTION

Hard work and dedication has meant that you have built up a sound business to benefit you and your family and continuity is one of the key elements for any business to survive and thrive. Naturally you would want to ensure that your loved ones are provided for in the event of your death.

So what if the worst should happen and either you, or a business partner were to lose capacity or, even worse, die?

Most business owners do not think about what would happen to their business if they became incapable of running it or making those important day-to-day decisions through physical or mental incapacity. The consequences for your business could be catastrophic. If orders need to be fulfilled or bills and wages paid, having someone that has the authority to deal with these matters is essential and a Business LPA would be very important.

Death of a shareholder is not something many of us want to think about but this can have a major impact on a business that hasn’t planned for such an event, especially if that shareholder is also a Director.  Without a valid Will the deceased’s share would be subject to the Laws of Intestacy and the person who inherits may not be the person you intended.

Without the appropriate Business Succession strategies in place:

  • Your spouse/partner and children may not inherit your share of a business.
  • Business partners may not be able to buy out the deceased’s share.
  • The surviving spouse or children may be obliged to take over the running of the business.
  • The value of the business could depreciate owing to the inexperience of any beneficiary.
  • The business may have to be sold and the proceeds become liable to Inheritance Tax.

Would you or your business partner be content to run your business with their surviving spouse or their beneficiaries?

This could have a major impact on the running of the business and the value of the business may now go down following the death of such a key person.

Many businesses are set up as a limited company. However, few of those businesses ever put in place a Shareholder Agreement. This agreement lays down a formal understanding, agreed by all. 
 
By determining what happens in certain situations there is much less potential for disagreements between the shareholders that could damage the business, particularly if things start getting tough. The simple fact of establishing the rules which everyone has to comply with makes good business sense and having an agreement in place will help protect the relationships you valued when you decided to work together.

Would a surviving spouse or beneficiary even want to be involved with the running of the business?

Many spouses would probably not want to be burdened with the running of a business they may know very little about. For instance, if there are young children to care and provide for then the surviving spouse might prefer to be bought out. It has to be appreciated that what is best for the surviving family might not be what is best for the business, especially if they have no experience within the business.

Planning for this eventuality and having a well drafted Cross Option Agreement in place can ensure that both parties’ needs are met. 

The basis of a cross option agreement is straight forward. Each shareholder agrees that following his or her death, the fellow shareholders will have the option to buy the deceased’s shares (in some cases this could also include those of his or her spouse). If funding the sale/purchase of the shares is likely to be an issue, the shareholders entering into the Cross Option Agreement will take out a Term Assurance Policy. Any amount that becomes payable under the policy is held in Trust by the remaining Shareholders to pay for the deceased’s shares.

"We understand that for most people their business interests are inextricably linked to their personal and family lives and we would therefore always recommend that any business continuity should be considered alongside personal legacy planning".

Here are some support sheets you may find useful...

Feel free to Get In Touch if you have any questions about Business Protection.