Partner and director insurance protection

If you are a business partner or share holding director of a business then failure to put in place a partnership or share protection plan could lead to major problems!

The premature death, critical illness or permanent disability of a shareholding director or business partner could have a serious impact, both on the future of your business and on your family.
The following are a few points you need to consider?

Majority shareholders
A Majority shareholder of a business usually has important voting rights that will normally have a direct impact on the running of the company. In the event of the death of a majority shareholder, these rights unless specified otherwise will form part of the deceased’s estate and would normally pass to their next of kin. This passing of shares could impact the company in two ways:

Director and partnership protection for your business

The deceased’s next of kin now have the legal right to a say in the running of the company as they now hold the voting rights. However, do they have the necessary experience? And, will they share the same vision that the surviving shareholders have for the business?

They may well prefer to sell their newly inherited shares for a monetary lump sum, usually a one off payment. But who will buy them? Unless the remaining shareholders have sufficient liquid capital, then the next of kin of the deceased’s shareholder may choose to sell these valuable voting shares to a third party, possibly a hostile third party, perhaps even a direct competitor.

Minority shareholders
As we have pointed out above, it is generally the voting rights that are associated with shareholdings of a private limited company that makes them such a valuable asset in monetary terms. Minority shareholders however may not have significant rights and so, in the event of the death of a minority shareholder, the next of kin may inherit shares that are virtually worthless. The only people who are likely to buy these shares are the surviving shareholders. However as these shares are effectively worthless and bearing in mind the surviving shareholders may not be under any obligation to buy them, then the next of kin may be unable to sell them for any significant value.

Partnerships
In much the same way as a majority shareholder, the death of a partner in a business could mean that the deceased partners share in the company is normally inherited by their next of kin. The beneficiaries of the deceased partners shares may or may not then enter and contribute to the running of the firm. Depending on the partnership the beneficiaries may even gain control of the company.

The solution
The answer to these scenarios is a director share or partnership protection plan. This is a combination of a legal agreement between all shareholders or business partners and a life insurance policy covering each director or business partner. The agreement means that in the event of the premature death (critical illness and/or permanent disability can be included as an optional extra) of a shareholding director or business partner the surviving shareholders/business partners agree to buy the deceased’s share in the business. The agreement means that the beneficiaries must sell if the surviving partners choose, and the partners must buy if the beneficiaries choose. It is imperative that an insurance policy taken out in conjunction with this agreement in order to provide the necessary lump sum of money for the surviving partners to purchase the deceased’s share of the company.

If you do not have these arrangements in place or if you would like us to review your existing arrangements as you are concerned that your business may be in a vulnerable position should one of these events happen to you, then please click on either of the tabs at the top of the screen and we will either call you back, normally on the same day or, send you the relevant information you request.

Our Corporate Financial specialist will be able to guide you on the correct levels of cover to put in place and then search the whole market to find the most appropriate provider for the cover you require.

Keyman Insurance
We have a dedicated section on Keyman and Keyasset protection that also offers a facility to obtain quotations online, to access this section CLICK HERE.

Great British Finance Limited are authorised and regulated by the Financial Services Authority (FSA). The FSA does not regulate some forms of Mortgage, Inheritance Tax Planning, Credit Cards, Personal Loans, Deposit Accounts & Insurance. If you are submitting an online request, we would advise to read our KeyFacts statement, links are at the top and bottom of this page.