THE IMPORTANCE OF BUSINESS PROTECTION THE IMPORTANCE OF BUSINESS - - PowerPoint PPT Presentation

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THE IMPORTANCE OF BUSINESS PROTECTION THE IMPORTANCE OF BUSINESS - - PowerPoint PPT Presentation

Sep 16, 2022 197 likes •383 views

THE IMPORTANCE OF BUSINESS PROTECTION THE IMPORTANCE OF BUSINESS PROTECTION TODAYS LEARNING OUTCOMES How to keep control of a business should a partner or shareholder suffer a critical illness or die. How to protect a business

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BUSINESS PROTECTION

THE IMPORTANCE OF

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THE IMPORTANCE OF BUSINESS PROTECTION

  • How to keep control of a business should a partner or

shareholder suffer a critical illness or die.

  • How to protect a business against the sudden and unexpected

loss of a key employee.

  • Relevant life plans and how they can help provide financial

security to an employee's dependents.

  • We’ll do this by looking at 10 key questions.
  • But first, lets start with an example….
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TODAY’S LEARNING OUTCOMES

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EXAMPLE ABBEY NAVIGATION SERVICES LTD

  • Alan Managing Director 52%
  • David Technical Director 24%
  • Anne

Sales Director 24%

  • Net asset value

£100,000

  • Gross profit

£500,000

  • Net profit before tax

£150,000

  • Value

£1,000,000

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CONTROL

Shareholding Level of control 0-25% Virtually no control

Minority shareholder rights only

26-49% Limited ‘nuisance’ value

Can block special resolutions

50% Balance or deadlock

Depending on relationship

51-74% Working control

Controls dividends and director appointments

75-100% Total control

Change Articles, sell company, wind up, etc.

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QUESTION 1 WHO DOES THE FOUR KEY BUSINESS FUNCTIONS?

Who’s responsible for…

  • Leadership
  • Financial control
  • Production
  • Sales

Who’s on the subs’ bench?

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QUESTION 2 HOW DO YOU FIND ANOTHER ALAN?

An example of the kind of costs that could be involved

  • Time

6-12 months

  • Head hunter costs

£15,000

  • Relocation costs

£30,000

  • Share option buyout

£20,000

  • Package
  • Car lease

£5,000

  • Salary/pension

£60,000

  • Bonus

£20,000 £150,000 These figures are estimates – costs can vary greatly.

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QUESTION 3 WHAT ARE THE FINANCIAL CONSEQUENCES?

How do your

  • Customers
  • Competitors
  • Trade creditors

All feel today? And what will they do in their own interests?

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QUESTION 4 HOW DO YOU GET ON WITH YOUR BANK MANAGER?

How does your bank feel today?

  • Who will you be dealing with?
  • Your manager or the recovery team?
  • How secure is your overdraft?
  • How will you service your loan?
  • If they lend, will they require personal

security?

  • Will this be retrospective on existing borrowings?
  • Second charges don’t die with the director.
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QUESTION 5 WHAT DO THE EXECUTORS WANT?

  • Outstanding salary/dividends
  • Director/partner loans
  • Return of pension fund
  • Property pregnant SIPP/SSAS
  • The business share
  • What’s in the will?
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QUESTION 6 DO YOU HAVE A ‘BUSINESS WILL’?

Articles of Association

Abbey Navigation Services Limited Company Number 03456789

Partnership Agreement

Abbey Navigation Services

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QUESTION 7 DOES IT ENSURE FAIRNESS FOR BENEFICIARIES?

Anne was a minority shareholder

  • Little if any power
  • No market
  • Surviving directors can revert to salary

basis

  • No guarantee of income

The estate’s problem.

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QUESTION 8 HOW DOES IT KEEP CONTROL OF THE BUSINESS?

Alan was a major shareholder

  • His widow can appoint herself (or nominee)

as director

  • She controls dividends
  • She may want to sell the shares
  • If so, to whom? At what price?
  • Sell to a competitor?
  • Are there any restrictions in the articles?
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QUESTION 9 WHAT’S IN THE ARTICLES?

  • What restrictions are there?
  • Pre-emption rights?
  • Must offer to existing

shareholders first

  • Value clause
  • How will the shares be valued?

But where does the money come from?

Articles of Association

Abbey Navigation Services Limited Company Number 03456789

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QUESTION 10 HOW WILL YOU LOOK AFTER THE FAMILY?

  • Do directors have dependants?
  • Do they have life cover in place?
  • How are they paying for it?
  • Do they want to save tax?
  • Do they want to put it through the

company? Relevant life plans Single life death in service

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RELEVANT LIFE PLANS TAX EFFECT

Premium now paid by company Company gross cost Employees National Insurance contribution @ 2% Income tax @ 40% Employers National Insurance contribution@ 13.8% Total gross cost to company £1,000 34 690 238 £1,962 Company net cost Corporation tax relief at 19% Net cost of 373 £1,590

Assumes 40% tax-paying employee and 19% corporation tax-paying company. *Corporation tax relief on relevant life plans assumes payment is acceptable to local tax inspector as trading expense. Tax rates 2018/19.

£1,000 £1,000 *190 £810

49% saving

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OK, WE LIED QUESTION 11

Are your clients indulging in unprotected success?

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THE IMPORTANCE OF BUSINESS PROTECTION

  • Send us a question now (we’ll do our best to answer them).
  • Our website has lots of useful information, including our business

protection planner toolkit - adviser.royallondon.com/business.

  • Contact your usual Royal London sales consultant.
  • Contact me - david.dawson@rlisales.com or 07919 170171.
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LOOKING FOR MORE INFORMATION?

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London EC3V 0RL. November 2018 PRP8PN0124