Business Risk Assurance involves some key concepts:
buy and sell arrangements, key person insurance
and an array of other solutions.
Frequently Asked Questions
Why enter a buy and sell arrangement?
Inside companies, there is the benefit of perpetual succession. This means that the company may continue despite the death or disability of its partners. Shareholding in private companies cannot be traded on the stock market. Private company shareholdings will form part of the estate of the deceased or disabled partner. Heirs to the estate of the disabled or deceased may not be able to actively participate in the business. The remaining members have it in their best interest to purchase the shares of the dead or disabled partner, so as to prevent someone who does not have the necessary skills from joining the business.
What is a buy and sell arrangement?
In the case of death or disablement of a partner, the remaining partners are able to purchase the shares of the deceased or disabled partner. Under a buy-and-sell agreement, the executor of the estate is obliged to sell the shares to the remaining partners, to which, the estate will be compensated for the purchase of those shares. At this time, the surviving partner/s may not have sufficient liquidity to afford this obligation. There is no use in having the right to purchase, but not the affordability. For this reason, life insurance policies are taken out for all partners subject to this agreement. Our team of experts will assist you in drafting the necessary documentation.
What is key person insurance?
The success of a business can sometimes become solely dependant on a particular party. This party can be a general employee, director or technical specialist. In the event of the death or disability of this individual, the business could incur substantial financial losses. The employer can take out an insurance policy on this individual which will cover the cost of damage in the event of their death or disability.
What is a contingent liability
‘Contingent Liability’ is a form of debt that is not your personal debt, but may become your personal responsibility to settle. How would this ever happen? This is contingent on a series of events which may occur outside of your control. To operate, businesses often have loan agreements which place them in debt to the bank.
Often, personal suretyship/guarantees are signed with the bank which agrees that: if your business cannot repay the loan, your personal estate will. If you pass away while the loan is still outstanding, the executor of your estate will be tasked with settling these debts in the winding up of the deceased estate.
Unless there is a certainty that the bank will not claim for repayment of the loan against your business and your estate, you place both your employees and your heirs at risk.
What other Business Risk Assurance solutions do you offer?
Pension and Provident funds, Group benefits, Contingent Liabilities, Debtor’s Cover, Business Overheads Cover, Income replacement, Loan Account Protection, Security for Loans.