Partnership/Shareholder Protection
Have you ever considered how you or your business would manage if a business partner or shareholder dies or is diagnosed with a critical illness?
In this scenario, and without appropriate protection in place, there is the potential for other owners of the business to lose control to an unwelcome beneficiary, family member or even a competitor.
These kinds of scenarios can have a serious impact and cause significant upset and stress. You may have lost somebody close to you, and this somebody may also be critical to the successful running of your business. The uncertainty around what happens next while you navigate next steps could also have a massive impact on the ongoing profitability of the business.
If a partner/shareholder dies and there is no protection in place, the deceased’s shares may automatically be transferred to their spouse. This all depends on the articles of association and whether there is a cross option agreement in place.
It’s possible that in this scenario you may not want to have their spouse working with you in the business. It’s also very possible that they may not want to work with you either, and they may prefer to sell their shares instead.
In this scenario, having partnership/shareholder protection in place could provide a mechanism to buy the shares. The alternative is that if you do not have the ability to buy the shares, the surviving spouse may look to sell the shares to someone else, possibly even a competitor which may be disastrous for you and the future of the business.
If a partner was to suffer a critical illness and it was so serious that they could not or did not want to return to the business, they might decide to sell their shares.
Would there be sufficient cash within the business to allow you to do this? Remembering that not all of these funds may be available to you, or they may be simply insufficient to allow you to buy the shares.
A shareholder protection policy could provide a mechanism to buy the partner out and continue operating the business as normal should either of you die or suffer a critical illness. Such a policy could be arranged to pay out a lump sum to cover the value of each others shares in the business.
If you are a Business Partner or Shareholder and would like to discuss your protection options, please get in touch with our specialist.
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