Transcript KEYMAN & SHAREHOLDER PROTECTION OPTIONS & BENEFITS AVAILABLE Speaker Russell Beesley Financial Consultant – Rees Astley Agenda • The Three Key Questions • Basic Business Protection Issues UK Population.

KEYMAN & SHAREHOLDER
PROTECTION
OPTIONS & BENEFITS AVAILABLE
Speaker
Russell Beesley
Financial Consultant – Rees Astley
Agenda
• The Three Key Questions
• Basic Business Protection Issues
UK Population 1
Working Population 1
Limited Companies 2
Other Businesses 3
60m
31m
1.7m
2m
Sources:
1 National Statistics
2 Companies House
3 Datamonitor
Market Research*
 Only 10% of small and medium enterprises
(SMEs) have protection for their key
employees
*Research on behalf of Scottish
Provident by BDRC, December 2005
Market Research*
 Loss of a key employee through death or
critical illness:
 21% said they would suffer a significant loss of
trade
 27% said it would require a major re-organisation
of their business
 19% thought the business would cease trading
altogether
*Research on behalf of Scottish Provident
by BDRC, December 2005
How do business owners
protect their business ?
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Employ the right staff
Understand their customers & competitors
Ensure quality control
Exercise financial controls
Insure their property & equipment
Many have overlooked
themselves!
What if ……..
What if …….a partner suffers a
heart attack
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Can the partnership continue trading ?
Cost of replacing the key individual ?
Will partner sell to fellow partners ?
Can they afford to buy the partner out ?
How would they agree on a price !
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What if ……. a shareholding
director dies?
Can the company continue trading?
Cost of replacing the key individual?
Would the surviving spouse wish to be involved?
Would the other shareholders want that?
Would the surviving spouse wish to sell to a third
party?
• Could the others prevent that!
Business Protection
In such events the damage to the business could
be catastrophic
Business Protection resolves these issues
Business Protection Provides
Profit Protection
Business Succession
Profit Protection
• Key person cover
• The proceeds are payable to the
business
– Replace key person
– Pay off business debt
– Protect against loss of profits
– Preserve value of shareholders interest
Definition of a key person
A key person is any person whose death or
disability would have a serious effect on the future
profits and value of the business
Business Succession
• Shareholder/Partnership Protection
• Proceeds available to buy out
– The outgoing owner following a critical illness
– His/her family after death
• Co shareholders/partners will use the proceeds
to acquire that business interest
Three Key Questions
• What type of business structure is it ?
• Why are the proceeds required & How Much?
• Who should receive the proceeds ?
Key Question 1
The Business Structure?
• Company
• Partnership
• Sole Trader
Key question 2 –
Why are the proceeds required ?
• Key person cover
• Loan protection
• Partner / shareholder protection
How Much is Required?
• Key person
• Multiple of profits/salary
• Shareholder Protection
• Controlling holdings
• Minority holdings
• Property or Investment Companies
Key Question 3
Who should receive the proceeds?
Solutions
Loan Protection
• Insurance taken out to ensure
repayment of a loan in the event of
death or critical illness
• Disability Income Benefit (Income
Protection) could be considered
• Often required on a key person by
a lender
Shareholder/Partnership
Protection
Potential problems for …
• The Family
– Many shareholders/partners leave their
stake in the business to their family, who
may have no aptitude for the business
– The family’s only option may be to sell the
stake in the business (to raise cash)
– Can they find a buyer?
– Will the family be certain to get a fair price?
Potential problems for …
• The Business
– Pressure due to loss of colleague
– Remaining shareholders/partners will want to
maintain control of the business
– Will they have the money? Will they be forced to
borrow? Will they be able to borrow?
– Will the stake in the business be OK remaining
with the family?
– Will they sell them to an undesirable?
Eliminate the problems
• Three distinct elements:
– Insurance to provide the funds to buy the
shares
– Set up insurance so that the funds are
received in the right hands and free of tax
– Ensure there is a tax efficient agreement
between the shareholders/partners to
buy/sell shares
Conclusion
– Every business should assess their current
position
– And any existing cover that they may have in
place