Shareholder Protection Insurance Case Study

Shareholder Protection Insurance Case Study

Many UK Businesses have no idea how much they need shareholder protection.  In this example we will imagine a business run by two partners.  The business is an estate agency and is run by Bill and Ben.  The business has been established for a number of years and is doing well.  Both Bill and Ben are well known in the area and regarded as being the professional estate agents to go to.  When Bill and Ben set the company up they did so on a 50/50 basis and share the responsibilities, running and profits equally.  Both Bill and Ben are married with children.

One day Bill is killed in a traffic accident.  Naturally Bill’s family and Ben are devastated.  From a business point of view Ben has lost a valuable partner in the business who contributed 50% to the running of the business.  He will be sadly missed and the business will never be the same again nor will it generate the same kind of turnover.

For Bill’s family things will obviously never be the same again.  They have lost a husband, father and bread-winner.  However, they still have a 50% share in the business which should give them some income.  Bill’s wife has no knowledge of the running of an estate agency business, not that she is able to contribute in any way as she has children to look after.

Ben now realises that not only has he lost a valuable business partner who made the business the success it is today, but he also has a new business partner who will contribute nothing to the running of the business, yet still take 50% of the profits at the end of each year.  Ben’s own income will now suffer too.

This scenario forces many businesses to cease trading.  No one wins.  Ben has to start a new business all over again and Bill’s wife has been left 50% of a worthless company.

If Bill and Ben had shareholder protection things would have been different.  The protection policy would have paid Bill’s wife a lump sum of money equal to the value of Bill’s share in the company.  Ben would have been able to continue to run the company on his own and keep all of its profits.  In this scenario everyone gets their fair share all thanks to a little bit of forward planning that acts in both the businesses interests and family interests.

This case study has assumed Bill dies.  Another scenario (statistically far more likely) is that Bill could be diagnosed with a critical illness.  He would still be entitled to draw a wage from the business as he is a 50% shareholder but it would not be long before both his wage and Ben’s wage dropped significantly.  A Shareholder protection policy would  stop this from happening and protect both Bill and Ben.

Does shareholder protection have a place in your business?  What would happen to your business if you didn’t have it?  Some businesses simply say that if a partner dies their share should pass straight to the remaining partners but that is not fair to the deceased partners estate.  And besides, who would want to work hard to build a business up that leaves nothing to their estate?

Martin Cavana writes for The Business Protection Company who specialize in all types of Business Protection Insurance within the UK. The company offers advice and guidance for Partnership Protection, Shareholder Protection, Keyman insurance, Sole Trader insurance, Business Loan Protection and Executive Income Protection.

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