Protection - Business

Financial protection principles apply to businesses as well as individuals.

Sole Traders

A sole trader may have needs as follows

• long-term illness or disability may severely damage the business
• a sole trader is responsible for all the business debts, so protection may be needed to avoid the family becoming liable for those debts

Partnerships

When a partner dies this may give rise to protection needs

• unless there is an agreement to the contrary, the partnership is terminated
• deceased partner's estate now owns a share of the partnership's assets (which may not be for the benefit of the partnership and / or the partner's heirs, so a plan may be required to enable the surviving partners to buy the deceased partner's share from their estate and provide the funds)
• partnership survival

Directors

Small companies may have similar problems to partnerships

• will the surviving directors be able to work with the heir?
• will the heir be willing or able to contribute?
• Will the heir sell the shares to someone else who might attempt a takeover bid?
• A plan may be required to enable the deceased director's shares to purchased from the estate

Companies

A company often has key personnel whose death or disability may cause a significant loss of profits, or even imperil survival of the business.

Examples

• a founder of the company who provides most of its impetus
• a controlling director who has personally guaranteed bank borrowing
• a sales director with valuable contacts