Ownership Protection

The loss of a fellow Partner/Director through death or critical illness may destabilise your business and can quickly lead to financial difficulties. You may need to find immediate funds to afford to purchase the deceased or serious ill member’s shares in the business. This can mean having to try to borrow money at a time when the bank may be looking at your business in a negative light, having lost a fellow partner, or having to dip into any capital reserves the business may have.

A Partnership/Shareholders Protection Plan can offer a solution by providing a sum of money to the remaining business owners to allow them to purchase the deceased or critically ill members interest in the business. At the same time the family of the partner that has died or suffered a critical illness will have much-needed funds at a very traumatic time to help rebuild their lives.

Example Scenario

John Robinson is one of the three shareholding directors of an Optometrists Practice. The company is worth £900,000 and each director owns a third of the shares in the business. Unfortunately John dies in a car crash.

With shareholder protection in place John and his co-directors had taken advice from their adviser and put in place a shareholder protection arrangement. Each director had taken out life cover of £300,000 and placed it under trust for the benefit of their co-directors. Their solicitor had also updated the articles of association to ensure that a deceased director’s shareholding could be purchased from their estate.

On John’s death, his life cover paid out £300,000 to the trust. The trustees passed this to the two surviving directors who then purchased John’s shareholding from his family who had no desire to become personally involved with the business. The money helped them at this difficult time. The two co-directors were able to retain control of their business and each now owned 50% of the shares.

Without shareholder protection if the three directors had made no arrangements then, on John’s death, they would need to raise £300,000 to finance the purchase of his shares. Without sufficient personal funds, they might have to take a loan. If a lender was unwilling to give a loan then the share purchase would not be possible. A third of the company would remain in the ownership of John’s family. They may not want involvement in the business and may prefer the £300,000 following the death of John.

Important Considerations

How much cover you require, and the analysis of what is specific to your business is crucial in ensuring that you have the right cover at the right time for your business. We have experts who can listen and work with you and your legal advisers to help identify what is important and assist in putting a plan in place that is tailor-made for you and your business that will ensure your business continues to survive even in the most difficult of circumstances.

Free Business Protection Review

Optometry Wales is offering a complimentary Business Protection/Key Person review to all Optometry Wales members. To take us up on this offer please...

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We will assist you in considering what cover is right for you, the indemnity period required, and how to calculate the correct figures to ensure adequate insurance is in place.

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Further Help and assistance

Optometry Wales Insurance Services is happy to discuss all the issues raised in this Newsletter with any member. Please do not hesitate to contact us should you which to discuss any aspect in more detail.