BUSINESS PROTECTION

Devin Smith – Chartered Financial Planner – 7th August 2020

The current crisis continues to cause upheaval for many people and business owners are not exempt. Reports from our own finance minister would indicate that the economic fallout will continue for some time.

Many business owners will be taking advantage of the support and loan schemes available to them from the Government, or arranging new facilities with their bank, to help them through this crisis.

 

With any increase in the level of financial obligation, it is important that business owners do not put their family or business at risk in the event of the death, or illness, of a major shareholder or key person in their business.

In addition, as many people will have been directly affected by COVID-19, the pandemic brings into sharp focus the importance of having plans in place ready for any unthinkable event, including illness or death of a business owner, major shareholder or key person.

As a start, Wills and Lasting Power of Attorneys (LPA) should be reviewed to ensure that they are up to date and adequately reflect an individual’s wishes.

As part of the review, ask yourself does the Will and LPA deal with business assets sufficiently? Is there any succession planning in place? LPAs will frequently appoint a close relative as an attorney, but the chosen attorney may not have any experience in the donor’s business.  In these circumstances, a specific ‘Business’ LPA may be appropriate to run alongside the existing LPA, with different attorneys to deal specifically with the business.

If there has been an increase in business debt over this period, is the existing life and income protection enough for the new liabilities? Have the directors of the business ensured that their families are protected against this higher level of debt which could mean a reduced business value available to them?

Does the shareholder or partnership agreement deal sufficiently with the death or illness of a major shareholder or partner? Is enough shareholder protection in place to guarantee the required level of funds to fulfil any cross-option agreements?  

Given changing roles within business groups, or fluctuating business values and priorities, have the directors reconsidered appropriate protection to protect against the loss of key individuals?  

Whilst it is not up to Private Client Solicitors to advise their clients about the level of life and illness cover that it is in place, it’s important that clients are encouraged to seek advice from a suitably qualified financial planner. This planner will be able to review the existing level of cover and recommend any adjustments, alongside the Private Client Solicitor. 

Similarly, solicitors working closely with their business clients can partner with a financial planner to ensure that the business succession issues are properly funded and shareholders, and their families, are protected from the unseen.

 

 

This blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions and should be considered as guidance and not advice.  It is important for all individuals examining their pensions to seek expert financial advice from a regulated financial adviser.  Solicitors should be cautious when examining pensions with their clients as it is easy to stray into the area of regulated financial advice.  None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person. 

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