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It will never happen to me – will it?

By Tom Williams

Business owners are key components to the success of any company. They are the lifeblood, introducing the initial concept, launching it into the world, nurturing it, and imparting a vision onto others; the business starts and ends with them, so if they were to suddenly depart, due to unforeseen circumstances such as serious illness or death, what would happen?

Most companies make sure they have public liability insurance and cover for contents, fire and theft, and one would expect anyone running a small to medium-sized company to recognise that the serious illness or death of a key person would have a potentially devastating affect on the business, not least to its value and profitability. Yet when it comes to key people, many adopt a high risk strategy by doing absolutely nothing about cover at all. Without question, the consequences of such inaction are potentially dire. What would happen, for example, if the business owner or major shareholder became seriously ill or died?

Let’s take the case of two shareholders, Richard and Harry. They spend all their time in the business and then suddenly, Richard dies. Who would acquire the shares previously owned by Richard? Has Richard made a Will? Would the shares go to Richard’s spouse, children – or someone else entirely?

The shareholder Harry could now be in a very difficult position. Would Harry be able to carry on running the company as he or she wants? Who would exercise the voting rights of the shares previously held by Richard? Even if the person inheriting the shares wants to sell them, could Harry afford to buy?

It could be more bad news for Richard’s family as well. What if Harry couldn’t afford to buy the shares – or didn’t want to? Where does that leave Richard’s family? They could be ‘locked in’ to a company with no real prospect of any income or other financial support at a time when they need it most.

Given that serious illness, such as cancer or a heart attack, affects one in four women and one in five men before retirement age, potential scenarios like these are not uncommon. Yet the problems facing Richard and Harry could all have been perfectly ironed out, if the right safeguards had already been put in place.

Share purchase and partnership protection ensures business succession as well as the safeguarding of commercial interests and family legacy. This protection provides funds to allow remaining business owners to buy the shares of the business from the outgoing or deceased owner. By putting this simple arrangement in place, capital is available to help purchase this person’s interest.

So in the cases of shareholders Richard and Harry, with these measures in place, solutions would have been found for both parties by utilising life cover, a Business Trust, a legal document called a cross option agreement, and structuring Wills correctly.

Upon Richard’s death, the shares could pass into a Will Trust, set up for the benefit of the spouse and other family members. At the same time, the monies payable on Richard’s death from the life policy could pass into a Business Trust for the benefit of Harry and family. The cross option agreement then allows the shares to pass into the Business Trust and the money moves across into the Will Trust which can then be used to benefit Richard’s family.

For Richard, the Will Trust structure would provide Inheritance Tax savings to be made on the spouse’s death later on, and long-term planning opportunities for Richard’s children. It would also provide a useful asset protection mechanism for the family in the future.

Meanwhile, as almost every privately owned business ends up being sold or transferred one day, Harry can take advantage of some useful long-term tax planning opportunities for the future by holding shares previously owned by Richard in a Life Policy Trust.

Having all the correct protection in place and ensuring this is regularly reviewed and updated to reflect business changes is a particularly onerous and daunting task for time-hungry entrepreneurs. It is one which is best left to a wealth management specialist to help protect the business from a wide range of risks and ensure business owners meet their aims while concentrating on managing their company.

At the same time, a wealth expert can help owners with all those other neglected financial affairs such as formulating a carefully planned exit strategy, retirement planning, investment, personal banking, mortgages, healthcare and other insurance. Receiving help with regards to these matters means you, the business owner has a few less things to worry about and more time to focus on your business.

To receive a complimentary guide covering Wealth Management, Retirement Planning or Inheritance Tax Planning contact Tom Williams on 0207 399 6889 or by email

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