Shareholder or Partnership protection

Often overlooked by SME businesses until it’s too late…

What happens if a shareholder or a partner in a business dies, or suffers a critical illness such that they are unable or have no wish to remain involved?

In most cases, on the death of a shareholder or partner, the family of the deceased would want cash value for the shares or partnership value and the surviving shareholders or partners would want to get back the shares/equity. In the case of critical illness, the affected party may wish to retire and surrender their interest in return for cash value.

All of this may already be laid out in a shareholder or partnership agreement - except that many businesses omit to make provision for where the cash comes from. Many businesses will lack the finances to make a cash payment for the value of the stakeholder’s interest. This can lead to major disputes and has on occasion led to the demise of a business.

We can assist by arranging protection in the form of life and/or critical illness cover, particularly in the case of life insurance only, for what can be relatively modest premium costs. Addressing these exposures can help avoid financial chaos and potentially fatal consequences for businesses.

The sad tale of AMT Coffee Limited is a valuable lesson, where the death of one of three brothers that founded the business led to financial warfare and a bitter family dispute. Sadly, AMT Coffee went into administration in November 2022, partly no doubt due to Covid 19, but not helped by the financial disarray which could have been avoided with some simple business protection planning. Click here for an article from The Times in 2020 recounts the story of AMT coffee.

What are the key messages here?

·       As a business owner, have you considered the financial impact if one of your stakeholders dies?

·       Beyond this, have you considered what the people receiving equity will or even want to bring to the business?

·       Is there a buyback or buyout mechanism? How will it be funded, or do you already have willing external buyers lined up?

How can we help?

·       We have been actively advising in the SME market since 2002 and have a deep understanding of differing ownership structures.

·       We can establish solutions to ensure funds can be made available when the unexpected happens.

·       We understand that each stakeholder in the business has different objectives and will work collectively and individually to tailor an appropriate solution.

·       We have excellent professional connections to assist with appropriate agreements and will also draw upon the experience of your existing relationships where these are in place.

To discuss this further please contact our Business Protection Specialist, Martin Ward on 01423 223640 or email him directly mw@prosperis.co.uk