Why you might need Shareholder Protection
Why Your Business Might Need Ownership Protection
We all understand that businesses in the construction sector have to spend significant amounts on general insurances, particularly on the essential and compulsory liability covers, and on insuring heavy vehicles and machinery.
However an area that is by no means compulsory, but is often overlooked, is using insurance to protect the ownership of the business.
The threat to your business.
The death of an owner or a partner will be tragic and can cause many problems. In addition to the obvious and every day problems associated with the loss of a driving force behind the business, companies overlook the destabilizing effect such a loss can have on the business itself.
When an owner or partner dies, then their stake in the business is likely to pass directly to their family. If this was a majority shareholder, this could mean that the remaining owners lose control of some or all of the business and have to work with the spouse or child of a former owner, which can often be difficult and stressful for both parties.
When do you need Share Protection?
It is always possible that whoever inherits a part of the business may choose to be a silent partner, but there is no guarantee of this. Some will want a more active role and may have very different ideas about which direction the firm should be taking, which can be very de-stabilising for the business.
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 it may not be able to be sold at all.
Of course, the ideal solution is 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.
Share Protection: the solution.
Share Protection insurance provides a cash pay-out to buy back shares, helping owners stabilize the business and ensure it is kept in their hands and not someone else’s. There are two parts to this insurance:
A life insurance policy: This will pay out the value of their shareholding on the death of one of the owners
A legal agreement: This 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 and ensure that the beneficiaries receive the cash value that they are entitled to, and the ownership of the business is protected.
Any Limited Company with multiple shareholders, and Partnerships, should be aware of and consider this issue, which can cause financial devastation in the worst cases.
Amicus are able to provide advice and no obligation illustrations to clients who would like to know more about this cover and how they can protect the business should the worst happen.
A conversation costs nothing, so why not take a few moments to find out how exposed your company is to the untimely loss of a shareholder and talk to our in house expert Martin Ward.
Contact Martin Ward on 07939 623084 or 01904 208470
Martin Ward is an Associate Director of Amicus Insurance Solutions Limited - Insurance Partners to the Scaffolding Association click here.