Business Protection & Key Man Insurance

Business Protection & Key Person Insurance

If you are in business, failure to protect your company, partnership and key staff could have disastrous implications in the event that one of you dies prematurely or becomes ill and couldn’t work. Here are some different scenarios that you should consider.

Shareholding directors of a private limited company

The death or permanent disablement of a shareholding director could have a serious impact, both on the future of your business and on your family. So what are the main points you need to consider?

Majority shareholders
Majority shareholders may have important voting rights that directly affect the running of the company. In the event of a majority shareholder’s death, these rights would normally pass to the deceased’s dependants. This could affect the company in two ways:

The dependants now have the right to a say in the running of the company. But do they have the necessary experience? And will they share the objectives that the surviving shareholders have for the business?

They might prefer to receive the value of the shares in cash. But who will buy them? Unless the other shareholders have sufficient liquid capital reserves, they may be sold to a, possibly hostile, third party, perhaps even a direct competitor.

Minority shareholders
Generally, it is the voting rights attached to a shareholding in a private limited company that gives them their market value. Minority shareholdings may not have significant rights and so the shareholder’s dependants may inherit shares that are virtually worthless. The only likely buyers of such a holding would be the surviving shareholders, but they may be under no obligation to buy.

The simple answer to both of these scenarios is shareholder protection. A legal agreement is signed by all of the shareholders, who agree to sell their shares in the event of their premature death and an insurance contract/s provides money for the surviving shareholders to purchase the deceased shareholders equity.

Don’t forget key staff

As your business is ultimately your people, its continued success may also depend on the special contributions made by a small number of ‘key’ men and women. Your fellow directors or partners should also be regarded as key people. The death or disability of any of them could threaten your company’s profitability. Indeed, its very survival could be at stake.

Key man (or woman!) insurance
The premature death of a key employee is likely to cause an immediate requirement for cash, so life assurance should be a top priority. However, it is not just the death of a key employee that can create serious financial burdens for your company. Today, many serious illnesses, such as a heart attack, stroke and cancer, no longer result in death but require lengthy periods of convalescence. A key man insurance contract can be written on the lives of key staff that would provide money for this eventuality.

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