When you are the director, a partner or even a shareholder of a business, the company will probably be one of your most valuable assets. The importance of safeguarding the company’s ownership in the event of the death of one of your partners or even yourself cannot be overstated. Careful consideration should be given to what would happen if a member of the board was to become critically ill or to die and whether business protection insurance is appropriate.
The best way to ensure that the business will be able to carry on is to purchase an insurance policy to cover such eventualities. Depending of the status of your business, this cover is usually provided by either a Shareholder Protection Plan or a Partnership Protection Plan. These policies will also include legal agreements relating to the future ownership of the company in the event of a critical illness or death of any of the owner’s; these are known as cross option agreements.
By taking out Partnership Protection, each of the business’ partners can be sure that if any one of them were to die, those who remain would be able to buy the deceased partner’s share out of the lump sum payment received from the policy.
If you and your partner’s decide that this is the best forward for your business, a further purchase agreement should also be bought. This would specify that that the partnership is to carry on.
Shareholder protection works in a similar way and ensures that if a significant shareholder were to die, the remaining shareholders would receive a lump sum from the insurer with which to purchase the deceased share.
Shareholder protection should be associated with a cross option agreement stipulating that if a shareholder dies, the smooth operation of the business will be assured by allowing the other shareholders to purchase the shares of the deceased.
Although it is human nature shy away from considering such matters, it is only by considering business protection insurance well in advance that it is possible to avoid additional complications and distress at what will inevitably be a difficult time.
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