Ian Robinson, Independent Financial Planner, tells us about a client who owned an online retail business and wanted to sell the company as part of their retirement plan.
He details how he helped the business put shareholder protection in place, to mitigate the potential financial repercussions attached to the tragic loss of a shareholder.
The case
Three new shareholders bought into the business in equal shares. The problem they faced was that following a reduction in available capital to buy back the shares of the retiring owner, combined with the knock-on effect of COVID-19, there would not be enough in cash to buy the shares of any one shareholder if they were to pass away.
Also, the business was growing quickly and much of its capital was being used to expand further. This meant retaining enough cash to buy shares if one of the shareholders passed away, or was unable to work, would not be financially viable.
After discussing the options with the client, Ian recommended life insurance on the lives of all three shareholders. Two of the shareholders were under 40 years old so the insurance was affordable and had the added benefit of Critical Illness cover.
As a result, the company could redeploy capital elsewhere for further development and expansion instead of retaining large cash reserves. The shareholders considered the insurance premiums to be an acceptable business expense that could be offset against profits.
Business Shareholder Protection Insurance has allowed our client’s business to operate with the peace of mind that they are protected against the financial repercussions attached to the loss of a shareholder.
