Coronavirus has created many challenges for businesses and an area of discussion that has rapidly escalated in importance is around protection. Protection should always be an area of priority for a business, but the situation we find ourselves in has understandably brought this topic to the fore. Therefore it is crucial for businesses to review continuity and succession plans at this current time.
When reviewing continuity and succession plans, you need to consider:
How would your business cope with the death of a key person that has a direct influence on the profitability of the company?
What would happen to the business should a director, shareholder or owner pass away?
Key Person’s Protection
53% of businesses cease trading in under a year after the loss of a key person. Why? Often the effect the deceased individual had on turnover or profit was so great, that the business can no longer continue without them. There could also be litigation, brand damage and liquidation issues to contend with which can ultimately lead to business failure.
So what can we do to help? We can help you: identify: key people in your business, quantify the financial risks of an individual passing away create a solution and implement it.
The typical result here is a life assurance plan, where the business receives the sum assured on a specific individual passing away.
Another area of great importance is relevant life cover. This is a tax efficient policy that allows an employer to offer a death in service benefit to their employees. Life cover policies are applicable to small businesses who do not have the scale to qualify for group schemes. This offering helps businesses offer competitive employee packages to attract and retain the right employees.
Similarly to personal life cover, the pay-out would go to the employee’s family of financial dependents, however, it is important to note that this is an employer funded policy and the premiums paid by the employer allows the company to benefit from corporation or income tax relief. This is a key area of planning for employers to protect their employees or indeed directors who are paid on PAYE.
Six out of ten business owners state that they have no protection in place to cover the cost of purchasing shares should a business owner die.
Simply put, a shareholder protection arrangement allows the surviving shareholder(s) to have the funds available to purchase the shares of the deceased shareholder from their estate and maintain control of the business and the direction they want to take it.
When discussing shareholder protection, it is important to think about the following:
- What happens if you or one of the shareholders were to pass away?
- What is the succession plan for the business?
- Would the deceased estate/spouse inherit these shares and what does that mean for the future direction of the business?
A good wealth planner can assist you by assessing current agreements you have in place, the type of business you are operating and also understand if any shareholders have medical conditions which will need to be considered.
From there they can help with the valuation of each member’s shares, work with other professional advisers to get the correct agreement in place, and structure the plan properly to accommodate the different % ownership of various shareholders.
Recent events have shown us the future is unpredictable and we should all think about getting our house in order should the worst happen. A lack of planning could have a huge impact on your business and loved ones. Having the correct advice and solutions in place is always important, but even more so in these uncertain times.
By Chris Allen, a Chartered Wealth Planner at Arbuthnot Latham
About Arbuthnot Latham
Arbuthnot Latham & Co., Limited whose business was established in 1833, is the London-based private banking, commercial banking and wealth management arm of the Arbuthnot Banking Group PLC, with regional offices in Manchester, Bristol and Exeter and an international branch in Dubai.
Arbuthnot Latham aims to provide a comprehensive approach to private banking, commercial banking and wealth management with its four core services; Private Banking; Commercial Banking; Wealth Planning and Investment Management.
Private Banking: A complete suite of Private Banking services created around clients’ lifestyles and circumstances include: deposit facilities, credit, debit cards, money transmission worldwide, money market deposits in major currencies and a wide range of treasury and foreign exchange services. All handled by a dedicated Private Banker responsible for the relationship of the client with the bank.
Commercial Banking: Full Commercial Banking offering to independent owner-managed businesses. The sector teams – Media, Real Estate and Specialist – all have considerable experience in their sectors and deliver a tailored and personal experience to clients from the London, Manchester and Exeter offices. The Commercial Banking team provides a range of bespoke lending facilities, deposit and FX management, a suite of Visa Card products and money transmission services all supported by online banking and commercial banking experts.
Investment Management: Highly diversified multi-asset portfolios managed predominantly under the Investment Management team’s discretion and designed around clients’ requirements. Free from restriction of affiliated products, Investment Managers strive to deliver risk optimal post-tax returns on clients’ wealth via a wide choice of management styles.
Wealth Planning: Based on a clear understanding of a client’s situation and immediate requirements as well as their long-terms goals. A Wealth Planner is assigned to work with clients to develop and execute a bespoke wealth plan, including retirement, estate and succession planning as well as insurance and tax planning issues.
For Business. For Family. For Life.