3 positive ways to ensure your business survives if something happens to you

According to Business Matters, more women than ever are starting their own businesses.

This is good news, as it highlights how women are just as likely to succeed in business as their male counterparts. That said, whether male or female, we could all be diagnosed with a serious illness, which could have far-reaching implications for a company you have worked hard to build over the years.

Furthermore, if you were to die, it could result in your business having to close or be sold to a competitor. The good news is that if you are a director of a firm, there are steps you can take to help ensure your business’s success if you die or suffer a serious illness.

Read on to discover three of them.

1. Shareholder or partnership protection

By taking shareholder or partnership protection, you are covering your own life and the lives of fellow directors. This means that if you or any of your fellow directors were to die, those remaining will receive a lump sum payment so that they can buy back the deceased’s shares.

Doing this could help provide financial support for the deceased’s family, while at the same time, allowing the business to continue as normal. This removes the risk of the company needing to be sold or ownership of the company falling into the hands of someone with no interest in its day-to-day operations.

A fundamental part of ensuring shareholder or partnership protection works is to create a “cross option” agreement. This creates a binding contract that compels the deceased’s family to offer the shares to the remaining directors, and for those directors to buy them.

2. Sickness cover for you and fellow directors

If you or a fellow director is diagnosed with a serious illness and cannot work for an extended period, the best solution might be for their shares to be sold to the remaining directors. This could provide the director who is ill with the money needed to pay for an operation, to take more time off work to fully recover, or retire.

With this in mind, you might want to consider taking protection that would pay a lump sum to the directors if one fell seriously ill. This could provide the funds needed to buy the shares and avoid having to draw a significant amount of money from the company to do it – the latter being something that might put the financial security of the firm at risk.

Typically, a legal agreement is created alongside the cover, which means the remaining directors must buy the shares if one suffers ill health and wants to sell them. These agreements won’t, however, obligate a shareholder with a serious illness to sell their shares.

3. Consider “key person” cover

If you or one of the directors is central to the business’s success, it’s possible to create a financial safety net for the business should anything happen to you or them.

Known as “key person insurance”, this can also be set up by the company for anyone else who is critical to the company’s success, which may include:

  • Sales managers
  • Research and development staff
  • Technical experts
  • Heads of department.

This type of protection is also available to sole traders, who are usually vital to their company’s success and survival.

As losing a key person because of death or illness could affect customer confidence and sales, and might result in lenders calling in loans, the cover typically protects against loss of profit. That said, it could also cover the expense of finding a replacement for the key person.

Get in touch

If you are a director or business owner and would like to discuss ways to ensure your business’s future, please email me on a.douglass@grosvenorconsultancy.co.uk or telephone 01793 766 123.

Alternatively, call my mobile on 07525 177 046. Please note that while I offer high standards of service and ensure any plan is right for you, I’m also a busy mum, so work Mondays and Tuesdays only.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

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