If things go wrong could the business survive?

Shareholder protection

Date

Many businesses look to protect themselves against every eventuality, insuring their liabilities, buildings, fixtures and fittings, stock, and materials. But how many insure their biggest asset, their people? Would your business survive the unforeseen shock of losing a crucial person such as a shareholder or person vital to the business’s profits?

 

It can happen and you don’t want it to surprise you one day. If things go terribly wrong, can your business survive them?

 

One thing every business has in common is that they are owned and run by people, and have at least one person who is essential to its success, whether it’s an owner, a shareholder, or a profit-earning employee.

 

The good news is that there are insurance options to mitigate these risks and ensure continuity and resilience so that the business can survive and weather challenging times.

 

 

Business Protection

Business Protection insurance safeguards against four key areas of business; ownership, profits, debt, and death-in-service.

 

Looking at two areas – ownership and profit.

 

If the business were to lose a shareholder their shares would be distributed as per their Will, therefore, the family of the deceased shareholder will typically inherit the shares, at which point they have two potential options, either sell the shares (maybe to a competitor) or take over the deceased’s position in the company (perhaps chair of the board). Both options pose significant risks and could be highly undesirable to the remaining shareholders.

 

Similarly, how would the business cope if it lost a crucial employee? This is someone who is relied upon to deliver the revenue, or they have specialist skills or knowledge that is fundamental to the success of the business. It may take several months or even years to find someone to step into their shoes and get up to speed.

 

Business Protection policies provide funding and financial protection so that the business can continue to function as normally as possible and allow the decision-makers the time to make the right choices without financial stresses.

 

 

Case Study

To give you a real-life example of a company we worked with that needed to protect its CEO, and shareholders and also maintain investor confidence.

 

The company researches and develops biotechnology, primarily in the field of disease prevention and vaccine research. It was founded by a team from a university research project into human protein properties and uses in infectious disease and cancer treatments, really cutting-edge stuff.

 

In the last two years, the company had raised £30 million in Series A equity financing and £15 million in government funding and had several pipeline projects developing vaccines to counter life-threatening diseases for babies and children.

 

During our research, we found that the business was heavily reliant on the CEO for its stability and position to date. The other directors, although vital, were ultimately replaceable. The CEO had
crucial knowledge, patents, shareholding, and agreements in place, that if they were lost from the business, would seriously impact its stability and affect investor confidence.

 

The first requirement was to arrange a Key Person insurance policy to protect the CEO for death or critical illness. We based the amount the policy would pay out on the expected impact, recovery, and replacement (recruitment) cost. The CEO was unlikely to be replaced internally, therefore, time and cost would be significantly higher.

 

The next part was to arrange a Shareholder Protection policy that provided funds for the remaining shareholders to purchase the shares from the deceased’s estate. The plan was ringfenced by a cross-option agreement, to lay out the rules of the buy/sell agreement to ensure that the shares could be bought back by the business and that the beneficiaries received a fair price.

 

These policies provided reassurance that should a major shock occur, the business would survive.

 

Be Prepared

Be prepared as you can’t be prepared after the fact, you have to be prepared before the fact and manage the risks. It can happen and you don’t want it to surprise you one day. If things go terribly wrong could the business survive them?

 

Get in touch to discuss options for your business.

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