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Shareholder Protection

Shareholder protection uses a combination of policies to do one job.

That job is to ensure that your family is paid fairly, in a timely manner for the shareholding you have worked so hard for.

There is no other way that guarantees that you will benefit from years of hard work. I pose the question – as a business owner, why do you take the risk, why do you work so hard to make sure your business stays afloat and grows.

Most people would say so that my family can benefit from it one day. 

This being the case, it is up to smart business owners to ensure that this can occur when you make the decision or as happens unexpectedly – when it is forced upon you.

Scenario

Imagine the scenario of two business partners who started a business many years ago. They did it tough. Some years were very tough. For the first few years the 50% shareholding they owned was worthless. Over time, through blood sweat and tears, the business grew and become profitable. The last valuation showed the shares were now valued at $500,000. Great your business is worth $1,000,000 in the event you wanted to sell or get out. Your hard work and risk is paying off now.

One day, the unthinkable happens. Your business partner doesn’t show up for work. Later that morning you receive a phone call saying that your partner has suffered a heart attack and passed away last night.

What next?

The first thing that occurs is the funeral. You of course attend, as is your duty. You have just lost the person you have spent most of your waking hours working with.

Within a few weeks, it becomes apparent that you are now working twice as hard. Your now have to do two roles. The job you were doing before and now the job of your deceased business partner. About now, the phone rings-it is the solicitor organising probate. His client, you’re ex business partner’s wife said that she now owns 50% of the business and the last valuation valued these shares at $500,000.

As a matter of urgency, we would like this money to be paid to the wife so we can tidy up the estate.

You are now at your wits end. You are working working harder than ever before and you now need to come up with $500,000 quickly. You head to the bank. The bank manager says, sorry, but your business partner was pivotal to the running of business and we are now a little worried about the future capacity and success of the business. The only way we will give you any money is to put up your home as a personal guarantee. The one thing you always tried to avoid.

All of a sudden, you have a big problem. You now need to not only take out a large loan to pay out the estate of the ex business partner, but the business is not doing well due to loss of the key person. On top of that, you now have a large repayment on a loan that serves no purpose to you but puts pressure on cashflow.

This whole scenario can be avoided by pre-planning. Keyman Financial Services will walk you thought the steps to make sure that not only the deceased family gets their fair value paid out, but we also assist in the setting up of the agreement which allows for a transfer of the shares back to the surviving business partner.

A win / win situation has evolved-instead of the worst financial nightmare you can imagine.


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