Graham Lofthouse of Devonshire Asset Management considers business exits

Many people start a business in good health and focus on activity and processes that will make it successful, but fewer consider protection against an enforced exit from the business. At any time a partner or director could develop a critical illness preventing them from any further involvement in the business or, worse, suffer a sudden death. What would happen to their share of the business? Would their family’s interest in it be protected?

Graham Lofthouse of Devonshire Asset Management believes in giving as much consideration to how you leave a business as to how you build it: “People can devote decades to generating a valuable business, then find themselves and their families unable to enjoy the rewards they deserve due to a lack of planning.

“There is no need for this as almost anyone can structure a business to build in the necessary protection, while insurance can provide the financial support for owners and their families.”

One option is shareholder or partnership protection, which enables company directors to purchase business shares from a fellow director’s family should they die or suffer a critical illness preventing them from continuing in the business.

This protection is generally available to individuals in business with others in a limited company or a partnership. It enables policyholders to retain control and ownership of the firm, should the worst happen. Combined with a properly written shareholder agreement, which will ensure the existing shareholders get first refusal should the shares be offered for sale (and preventing their acquisition by a competitor or other undesired third party), this insurance provides a lump sum enabling the policy’s beneficiaries the money to purchase them at a fair value for all concerned.

As well as basic shareholder protection, business protection can be extended to cover directors’ loan accounts so that money is always available to cover the company’s liability.

Another option is key man insurance, which can support a business should (anything) death or disablement happen to particularly valuable employees. “Complexity can vary from one company to another so it’s important that directors and partners seek appropriate professional advice,” adds Graham.

“With a little bit of planning, it shouldn’t take much to ensure that you and your family enjoy the fruits of your efforts.”

Graham Lofthouse
t: 01271 327500
e: graham@devonshireassetmanagement.co.uk
twitter: @glofthouse

BUSINESS ACTION
> Review company memorandum and articles and associated agreements or partnership agreement.
> Seek appropriate professional advice.
> Explore insurance options.

Read more articles in NDBA's Business Action magazine