Do you have the necessary protection in place to safeguard your business?
Running your own business may leave you little time to consider your financial future, but what would you do if a critical illness, such as heart attack or stroke, forced you to be absent from work?
Recent research conducted by Legal & General across 1,000 members of the British Chamber of Commerce has revealed a significant gap in business protection (the survey highlights are shown in the box below).
Failing to address what would happen on the death or critical illness of a business owner, or key person, could have significant financial consequences for the business and remaining shareholders. Ultimately, it could even result in the failure of the business.
To establish whether you have the necessary business protection policies in place, consider the following points. If you have not already addressed these issues, or recently reassessed your arrangements, we recommend a full review.
- Could your business continue to exist if you die or are absent for a long period?
- Would you and your family be left with enough to meet day-to-day expenses to maintain your lifestyle?
- What do you want to happen to your shares in the event of your death or inability to continue working?
- Do you need to put any formal agreements in place to meet your requirements?
- Do you need any protection policies to ensure that there are funds available to achieve what you want?
- What about the people who keep your business running and are key to its success? Do you have an employee whose death or continued absence might seriously impact on the profits of your business?
Next Steps
If you have not already reviewed your arrangements, Smith & Williamson can help. We provide advice on the financial consequences of the death or serious illness of shareholders and key persons, and we can also assist with putting the necessary protection policies in place in a cost-effective and tax-efficient way.
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Legal & General's Survey Results Corporate Debt Of the businesses surveyed, 50% had corporate debt, but less than half of these had any life or critical illness policies to cover the money owed. Shareholder Protection When asked about shareholder protection to provide funds to buy-out shares in the event of the death or critical illness of a shareholder, less than half had any formal agreement to establish what should happen. Only 4% had any shareholder protection to provide funds to help buy the shares. Keyman Protection Less than half of the companies had put in place any protection to address the financial consequences of the death or critical illness of a key person. |
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.