Business Continuity for Small Businesses is about more than Succession Planning

As a director there are a number of options available to you to protect your business and help ensure continuity should a major upheaval occur, such as the unexpected death of a shareholding director or the business owner. Director Shareholder Protection is one of the options.

You’ll probably find that your directors will have thought about taking out life insurance to cover themselves and help their own families should the worst happen but what about the business itself? What impact would the death of a shareholding director have on the stability and future viability of the business?

Have you stopped to ask?

  • Would the business have access to sufficient funds to buy the deceased’s shareholding or interest in the company?
  • Would the business have to turn to a third party to get the cash to pay the deceased’s estate?
  • What would happen if the shareholding passed to beneficiaries who aren’t able to offer a valuable contribution to the business or perhaps want to take it in another direction?
  • What would the remaining directors do if the beneficiaries wanted a quick cash payment instead of a share of the business? Would it force a sale?

If you are unsure of the answers to these questions, or they cause you concern, it could pay to take professional advice on how to protect the business’ future and, by doing so, your own stake in it.

With shareholder protection insurance, also known as share protection, a lump sum would become payment in the event that one of the stakeholders covered by the policy was to die before retirement. The proceeds from the shareholder protection cover can then be used to buy the deceased’s share of the business or partnership allowing the surviving directors/partner to retain control.

So, director’s shareholder insurance would provide the means to buy back the share holding concerned and ensure the business can continue at least financially without issue. However, this is only part of the picture. The relevant legal agreements also need to be drawn up or a section incorporated into the company’s Articles of Association to ensure the right to buy back directors’ shareholdings is established.

To discuss putting Director Shareholder Insurance in place, or more general advice on how to use business protection products to safeguard your business, just give us a call.