Business Protection is about having properly structured life assurance policies to deliver money into the right hands at the correct time. A recent survey by the Irish Marketing Surveys showed that almost 70 per cent of Irish business had not arranged any form of Business Protection, to enable them or the company to afford to buy out the shares of colleagues who die, where desirable.

In addition, many small to medium size businesses are heavily dependent on the skills, experiences and business contacts of a few key employees/directors, the death of these could have devastating effects on the business. Therefore, one may need to consider putting Key Person assurance in place, i.e. life assurance on the Key Person with the benefit payable to the company. This lump sum payable to the company can in turn be used to buy the shares and retain ownership of the business.

If in effect you are the business, i.e. your business depends on you and you alone. It is easy to see the devastating effects on your business should anything happen to you, not to mention the financial consequences for your family.

Consider effecting Life assurance on your life, for an amount sufficient to repay all outstanding business loans, or keep the business going until a sufficiently experienced person can be appointed to run the business, and/or to ensure your family are protected financially.

Partners in a partnership are all personally responsible for all the debts of the business. If one partner goes bankrupt or fails to pay taxes and other debts on his/her share of the business, the other partners are liable for all the taxes etc involved. The relevant question for you is how would you cope if your partner were to die? Many partnership agreements document one partner’s right to buy out the deceased partner’s share of the business following the death of one partner. If you can’t afford to buy out the other partner’s share, it will almost certainly pass to his/her family or other beneficiaries, who will become co-owners of the business. They may have little or no experience in this line of business, or worse still they may even decide to sell their share of the business to a unknown third party.

Therefore, partners should consider effecting Partnership Assurance, which is Life assurance to ensure that, on death, sufficient money will become available to enable the surviving partners to buy the shares of the deceased partner. Partnership Assurance is usually arranged with all partners agreeing that, on death, the surviving partners will purchase the deceased’s partners share of the business. Life assurance is arranged on each partner’s life and should any partner die, the surviving partners will receive a lump sum that can be used to buy the deceased’s partners share of the business.

There are many small to medium size firms in Ireland as Private Companies, the shareholders generally being the directors plus some other external people. The key risk being if one of the shareholders die, their shares may pass to members of their family with no experience in the business, who may want to influence the running of the business, or worse where they want to sell their shares to an unknown third party.

Business Protection on Directors, can be used by the company to buy back the deceased director’s shareholding and provide the deceased Director’s family or next of kin with a tax-free lump sum, subject to satisfying certain requirements.

Business Protection can avoid most of the problems and upheaval that could otherwise arise. The basic principals of a Business Protection Plan involve getting the shareholders to agree to a ‘buy and sell’ agreement, where the surviving shareholders are obliged to purchase the holding of any shareholder who dies and the deceased’s estate is obliged to sell this holding.

The funds required would need to be sufficient to buy the deceased’s shareholding at the current market rate. The Life Assurance policies within the Business Protection Plan would provide such funds. It is important as part of any ‘buy and sell’ agreement that there would be regular reviews of the market value of the shareholding and the associated life cover in place.