The untimely death of a key shareholder can have far greater downstream effects than the initial impact on the company and staff. Customer confidence can be dented; debtors and creditors made nervous and unscrupulous competitors can move to capitalize on any perceived instability in your business.
Without close management, external ‘perception’ can extend and exacerbate any initial drop in revenue or increase in costs and the end result on the bottom line can be crushing. Sadly this is when some businesses fail, which only compounds the distress of family members and business partners.
To protect against this there is a variety of insurance covers, including Partners or Shareholders Insurance. This insurance allows the business to carry on smoothly in the event of the death or disability of one of the partners or shareholders. The remaining partners/shareholders can retain control of the business while paying a fair price to the beneficiaries of the deceased or disabled partner and not have incurred additional potentially crippling debt. Shareholders insurance used properly is the most cost effective way of funding a buy/sell agreement and it is the only way that guarantees you a certain and predictable outcome.
For example, if one of your partners/shareholders dies, their voting rights (that directly affect the running of the company) will pass to his/her dependants – your new business partner. The dependants now have a say in the running of the company and may decide to sell their shares. Unless the other partners/shareholders have sufficient funds to buy them, they may have no option but to sell them to a third party – even a direct competitor.
We recommend that you include Partner/Shareholder insurance and possibly Key Person Insurance in your business plan. If you need any help or would like to discuss this further, please contact us.