Shareholder, Partnership and 'Key-Employee' Protection
If a shareholder, partner or key employee in a firm should die or have a critical illness, this is likely to have an adverse impact, possibly significantly so, on the business.
Research carried out by bdrc on behalf of Scottish Provident in December 2005 discovered that only around 10% of SMEs (small and medium sized companies) had protection for arguably the lifeblood of their company - their key employees.
What possible solutions would your firm have if a 'key member' of the firm should die or be critically ill?
Solution - your firm has large cash reserves
If your firm has large cash reserves, it may be able to ride out any upheaval caused by the death or incapacity of a significant member of the business. However, if it does not have such funds available, the survival of the firm could conceivably be at risk.
Solution - the bank will supply funds
Historically, it may have been possible to approach 'the bank' for funds to see out a crisis, but in the current 'credit crunch' climate, this option may not be open.
But consider, for a moment, the possible attitude of the bank, when told the reason for the request is the death of a 'significant player' in the business and that the your firm needs to loan to survive.
Solution - life and critical illness insurance
In the event of the death or critical illness of a key member of your firm, a life insurance policy would pay out a large enough sum assured to protect the business, to enable, for example:
- A shareholder's widow/widower to be paid a fair value for his or her dead spouse's shareholding
- The remaining shareholder's would not be forced to accept the widowed spouse into the business
- Provide money to hire a short-term specialist while it trains up a long-term replacement employee
Business protection has to be set-up carefully. We would consult with your firm's accountants and solicitor. There are complex issues that must all be done correctly, including setting-up:
- A cross-option agreement
- A business trust
- Equalisation of premiums
