Ensures that you regain control of your business by having the funds to buy the deceased or critically ill owner's share.
The loss of an owner can have a major impact on the success of any business. But it's not just about the loss of profits the business could suffer. Who would take their place? Not only in performing their day-to-day duties, but also in making decisions of how your business is run in the future. Have you considered the consequences?
Imagine if one of your co-owners were to die. What would happen to their share of the business? You could be forced to work with a member of their family for example. Virtually all owners that we advise state that the prospect of working with their co-owners' spouse/children is at best disruptive and at worst is unacceptable. Their family is unlikely to have the required knowledge of your business and may not have any interest either.
Over 50% of all businesses have left no instructions in a will or made any arrangements for their shares.*
Even more uncertainty is created if your co-owner suffers a critical illness (i.e. Cancer, Heart Attack, Stroke, etc.). Will they be able to return to work and if so, when? If they wanted to sell their share of the business, who would buy it? Having Shareholder/Partnership Protection in place ensures that all of these problems can be avoided. One Two Three Four Five
You and your co-owners have the security and peace of mind that:
The remaining owners keep control of their business.
The required funds are available to purchase their share of the business.
The critically ill owner, or their estate if they dies, gets fair value for their share.
Any arrangements are set up tax-efficiently.
*Source: Legal & General's state of the nation's SMEs report (5th edition). The premium stated below is correct as of 07.05.2021
£100,000 of Life Cover costs
£8 per month
for a 35 year old non-smoker, taking cover to age 65
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In order for the Shareholder/Partnership Protection arrangements to be effective by way of the desired outcomes, certain agreements and documents should be put in place.
Trusts When the Life Insurance/Critical Illness policies are arranged, we will assist you to write them in a Business Trust (free of charge and as part of our standard service). This ensures that the proceeds are paid from the insurer to the remaining owner(s) - giving them the money needed to purchase the shares.
Agreements The next step is to ensure that the share of the company is bought/sold if and when requested.
Most agreements involve options to buy and sell, as opposed to a firm sale and purchase agreement (so that certain tax trips can be avoided). This type of share purchase agreement is called a 'cross option' or 'double option' agreement. The agreement could be included in the company's Articles of Association, or as is more likely to be the case, in a separate agreement entered into by the owners.
The agreement would, broadly speaking, be in two parts. Firstly, on death, it gives the holder of the shares (i.e. the deceased's executors) the option to sell the shares, and, secondly, it gives the other shareholders a similar option to buy, hence the term 'double' or 'cross option' agreement. In a Cross Option Agreement the seller can effectively force the other owners to buy, and the owners can force the deceased's executors to sell.
We have partnered with a specialist legal firm that can offer you no-obligation, impartial advice and solutions to ensure that you have the required documents/agreements in place. If you have your own legal advisers then your dedicated Business Protection Specialist will be more than happy to work with them to provide the policy details etc.
Life Insurance and Critical Illness Cover (if chosen) is written on the life of a business owner. If an owner dies or becomes either terminally or critically ill, the policy provides a sum of money to the remaining owners. This ensures that the remaining owners have sufficient funds in place to purchase the deceased or critically ill owner's interest in the business.
Shareholder/Partnership Protection is also known as 'Ownership Protection'.
The amount of cover you have should reflect the value of your share of the business. But how do you value your business? This is a specialised area which should involve consultation with the relevant professionals. Your Accountant is a good place to start. We can liaise with your professional connections on your behalf to save you time and effort.
It is beneficial if all premiums are paid for by the company so that you can always see that the policies are active and that none have lapsed (e.g. if an individual was paying their premiums personally but stopped for some reason). Your Accountant will be able to advice on any tax-related queries.
All new owners should enter into the arrangement. When you are aware that there is a new owner of the business then please get in touch and your dedicated Business Protection Specialist will advise you on how to ensure that appropriate cover is put in place. Should an owner leave the business, then let us know so we can ensure that the cover is relevant at all times.
Insurers understand that your circumstances are likely to change over time. For example, owners may come and go, your profits and the business' value may increase or decrease. As such there are often options for you to amend your policy details mid-term. We will regularly review your cover to ensure that it remains relevant and is at the lowest available cost.
This helps even out any difference between the premiums that each owner is paying. Equalisation of the premiums removes the inequality of an older owner or one with a more significant share of the company paying more for cover than younger or more minor ones, whilst getting less benefit.
Premium Equalisation is also essential to make sure there are no unforeseen tax traps. As such your dedicated Business Protection Specialist will inform your Accountant once the policies are in force.
The price will vary depending on the person's age, health, job, the amount of cover needed and maybe even certain hobbies. This is why price comparison site quotes are often meaningless as they won't account for your specific individual circumstances.
We will provide you with accurate premiums from the outset. Nobody likes to see a price and then be told it's not available to them.
The policy you buy is there to protect your business - not anyone else's - so it's worth finding a policy that will exactly suit your needs.
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Vita is a trading name of Vita Financial Ltd, which is an appointed representative of Capital Protect Ltd, which is authorised and regulated by the Financial Conduct Authority. Their Financial Services Register number is 531444. Registered address: 1st Floor Tudor House, 16 Cathedral Road, Cardiff, CF11 9LJ. Company No. 7266691, registered in England and Wales. The guidance and/or advice contained within this website is subject to the UK regulatory regime, and is therefore targeted at consumers based in the UK. Calls may be monitored/recorded.