Many businesses across the UK take time to consider employee benefits or pension schemes. However, what about protecting the business itself? Underestimating the loss of shareholders or key personnel can have a catastrophic impact.
In our latest blog, we look at the key areas to consider when it comes to protecting your business.
Key Person Protection
Key person protection allows you to protect your business from the financial impact of losing a key employee (including owners/managers), whose death or illness would have a significant impact on the financial position of the business.
Key person protection is designed to pay out a lump sum to help the company survive the detriment of losing the key individual who is instrumental to the business. The money can then be used to help replace lost profit or find a replacement.
According to Legal and General, 52% of businesses believe they would have to stop trading in less than a year after the death or critical illness of a key individual – therefore, businessowners should seriously consider whether this type of cover is required to protect the future of their business.
Shareholder Protection Cover
If a shareholder in your private limited company, member of your Limited Liability Partnership (LLP) or partner in your partnership were to die, could you afford to purchase their share of the business? If the answer is no, shareholder protection cover is designed to help avoid the uncertainty of what will happen to a shareholder’s holdings.
Likewise, if a shareholder or owner was seriously ill, shareholder protection can allow the individual to sell their stake to other shareholders to ensure the continuation of the business.
Without protection, and a policy in place, the deceased’s shares could pass to their estate, leaving it to the beneficiaries to decide what to do with their holdings.
By ensuring a shareholder agreement is in place to determine what occurs if/when a shareholder dies, or is critically ill, alongside a shareholder protection policy to provide funds to the remaining company shareholders (if required), unnecessary stress can be alleviated should the unforeseen occur, for both the remaining shareholders, and the family of the deceased.
Lasting Power of Attorney (LPA)
An LPA allows you to appoint an individual who will be your legal representative if declining mental health, brain injuries or physical injury leaves you unable to manage your own affairs and financial wellbeing. The attorney you choose to appoint will represent you if you are no longer capable of dealing with your own finance, health, and welfare matters – so it is paramount to ensure it is someone you trust.
According to the Office of the Public Guardian, 2020/21 saw an 18% decrease in LPA/EPA applications – now is the time to ensure you have plans in place to protect your interests, should you be unable to. Speak to a specialist who can help and support you in planning now for tomorrow.
A business LPA is just as important – especially for business owners. If you became incapable of managing your business interests for any reason, such as deterioration of your mental capacity or serious illness, could the day-to-day actions of the business go ahead? For example:
- Who would have access to the company business account?
- Who would pay suppliers or make day to day decisions about the running of the business?
- Who would sign deeds and authorise share sales?
- Who would pay your employees?
In the absence of a business LPA, your business could be at risk. By putting in place a specific power of attorney limited to business purposes allows you to authorise individuals to manage your business interests on your behalf.
Get in touch
Whilst no one wants to think about the death of themselves or of key personnel, or the loss of their own mental capacity, it is essential to ensure your business is protected should the unforeseen occur. If you would like to discuss ensuring the financial stability of your business is protected from unforeseen events in more detail, get in touch by emailing enquiries@pmm.co.uk.