With so many unprecedented changes occurring in 2020, it’s now the time to consider the unexpected, and how it could affect you and your business.
As an example, what happens if, due to unforeseen events, your business partner passes away?
It’s likely that your business partner’s shares will be passed on to those in their will listed to inherit them, meaning you may now be in business with your partner’s spouse or children.
This could lead to a range of outcomes such as:
- the beneficiary becoming active in the business and making business decisions,
- the beneficiary retaining ownership of the shares but not contributing to the business,
- or even the beneficiary selling their shares on the open market.
Nobody wants to lose control of their business, but unfortunately, this can happen more easily than you think.
But there is a solution that businesses with two or more shareholders should be considering.
Shareholder Protection (limited companies) and Partnership Protection (partnerships and limited liability partnerships) are a type of business insurance that pays out a lump sum to the business, providing the financial means to purchase the shares back from the deceased partners benefactors. You can also include critical illness cover that will pay out in the event of the shareholder falling ill.
The remaining business owners keep control of the company and ensure that control isn’t passed to others and the deceased’s estate can sell their shares at fair market value. The arrangement is also tax-efficient.