At Ruby Financial, we understand that the loss of a business owner or partner can have a profound effect, not just emotionally, but also on the stability of your business. Such events can significantly disrupt a company’s stability. This is not just about emotional loss; it’s about the practical implications on the business itself. Imagine a scenario where an owner or partner passes away, and their share in the company transfers to their family. If this share is substantial, it could shift business control, compelling the remaining owners to collaborate with new, possibly inexperienced family members.

Share Protection

This is where the concept of Share Protection becomes crucial. There’s no assurance that the new inheritors will remain passive; they might want to actively steer the company in a new direction or, more drastically, sell their stake—potentially to a competitor. The ideal outcome is for the remaining owners to repurchase these shares, offering financial compensation to the family while maintaining business control. But, the critical question remains: Can they afford it? Share Protection insurance is designed to address this concern.

Mechanics of Share Protection Insurance

Share Protection insurance operates on two fundamental components:

Life Insurance Policy: On the unfortunate event of an owner’s death, this policy pays out, assisting in the purchase of their shares.

Legal Agreement: This document outlines the procedures for share acquisition, including pricing and conditions.

Owners individually take life insurance policies, equivalent to their share value, and these are established in trust for the other owners. Premiums vary based on individual factors like age and health status. Alongside, a share purchase agreement legally binds the details of how shares can be bought or sold.

The Share Purchase Agreement Explained

A common form of agreement is the cross option agreement. It grants the surviving owners the right to buy the deceased owner’s shares and the family the option to sell. However, neither action is mandatory unless chosen by one of the parties. There’s usually a time frame set for these decisions, with the insurance policy providing the necessary funds for these transactions.

Assessing the Business Value

When establishing Share Protection, assessing the business’s value is crucial. This valuation influences the insurance cover and needs regular reassessment to align with the business’s evolving worth. Valuation methods include open market value, fixed value, or fair value determined by an independent auditor.

The Importance of Trusts and Wills

Setting up a trust with your life insurance policy ensures a swift transfer of funds without awaiting probate. It’s also essential to have a valid Will, especially for business owners, to ensure that your share of the business is inherited as intended. The Will should be clear and include details about executors, your signature, a witness signature, and should align with any Share Protection policies to avoid future conflicts.

To prevent any potential legal challenges and to ensure that your wishes are respected, Ruby Financial can guide you through the process of drafting a legally sound Will. We focus on the critical elements like appointing executors and ensuring proper witnessing, all while considering the unique needs of your business.

Final Thoughts

At Ruby Financial, we’re dedicated to helping you safeguard the future of your business. With our expert guidance on Share Protection insurance and estate planning, you can rest assured that your business legacy is protected. Contact us today to learn more about how we can tailor our services to meet your specific needs.