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| Scenario
A
Shareholding directors
of a private limited company
The death or permanent disablement of a shareholding
director can have a serious impact, both on
the future of your business and on your family.
So what are the main areas you need to consider?
Majority shareholders
Majority shareholders may have important voting
rights, which directly affect the running of
the company. In the event of a majority shareholder's
death, these rights would normally pass to the
deceased's dependants. This could affect the
company in two ways:
- The dependants now
have the right to a say in the running of the
company. But do they have the necessary skill
and experience? And will they share the ambitions
and objectives that the surviving shareholders
have for the business?
- They might prefer to
receive the value of the shares in cash. But
who will buy them? Unless the other shareholders
have sufficient liquid capital reserves, they
may be sold to an outside - possibly hostile
- third party, perhaps even a direct competitor.
Minority shareholders
Generally, it is the voting rights attached
to a shareholding in a private limited company
that gives them their market value. Minority
shareholdings may not have significant rights
and so the shareholder's dependants may inherit
shares that are virtually worthless. The only
likely buyers of such a holding would be the
surviving directors, but they may be under no
obligation to do so.
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| Scenario
B
Key staff
Your business is your people. Its continued
success may depend on the special contribution
made by a small number of "key" men
and women.
Your fellow directors
or partners will also be regarded as key people.
The death or disability
of any of them could threaten your company's
profitability. Indeed, its very survival could
be at stake.
Comprehensive range of benefits
The premature death of a key employee is likely
to cause an immediate requirement for cash,
so life assurance should be a top priority.
However, it is not just the death of a key employee
that can create serious financial burdens for
your company.
Today, many serious illnesses,
such as a heart attack, stroke and cancer, no
longer result in death but need lengthy periods
of convalescence.
How much cover is needed?
It is not easy to place a value on a person
or to estimate the likely business losses incurred
by their absence. Without the business generated
by your key person, your company could face
major difficulties. Even if there were a deputy,
how long would it take for this person to become
fully trained and effective?
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Does either of these scenarios concern you? If
you run a business, whether a limited company or a
partnership, and if you employ key staff, a premature
death, disability or illness could have a serious
impact. There are solutions, but it is important to
be aware of them before such an event takes place.
Please
e-mail or
contact us for further information.
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The Financial Services Authority
does not regulate some types of business protection.
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