I am going to write about probably the most underused form of protection in the market, business insurance. It doesn’t matter whether you go into business with, it can be your best friend, your family or just someone you work well with. All business partners should have business insurance to avoid fallouts and potentially court action should a partner die prematurely.
Why is business insurance so important?
Let me run through a scenario with you
Mr Client dies age 50. As per his will, all of his assets pass to Mrs Client, including his shareholding in your business.
Mrs Client doesn’t work and now there is no regular income coming in, so she is looking at what assets she can sell to provide herself with an income.
She approaches you and asks if you want to buy the shares from her. The company has been doing quite well and so the shares are worth a lot. You just can’t afford to buy them at this moment in time.
All Mrs Client is concerned about at the moment is ensuring that she has a source of income, so she sells the shares to someone else.
You, however, are the one that has to work with whoever buys the shares.
…Or she might decide to get involved in the business herself
…Or her children may decide to get involved in the business instead.
You have no choice in what Mrs Client does with the share. You just have to accept her decision.
Solution
All shareholders should agree, in writing, what happens to the shareholding should one of your die prematurely. You can even include the option of the shares being passed on or you can commit to them being sold.
Get an independent valuation of the business carried out.
Insure that risk. Even if the company is cash rich, it is not a good use of company money to self insure. You are better off using that capital to grow your business.
Should someone die prematurely, the life policy pays the widow her value of the business and you get the shares.
