Why is it important to protect your business ownership?

💡 As a business owner, it’s your responsibility to do everything within your means to protect your business ownership and limit risk. And, most importantly, to keep the business running smoothly if you are unable to work for a period of time or worse, at your untimely death.

💡 Business ownership protection is only as good as the ability to fund the transfer of the outgoing business owner’s equity. As well as, to protect business ownership for the partners left behind.

💡 Firstly, ownership protection is for businesses with more than one owner. It assists in providing adequate funding to help the business, your family and other business owners survive.

protect your business ownership

Wealth Protection Case Study 1 – Protect your Business Ownership

Alex and Bill each owned 50% of the shares in a successful engineering business when Bill died suddenly.

Consequently, Bill’s shares were inherited by his wife Lynn via his Will. Therefore there was no Buy Sell agreement in place. Lynn is not obliged to sell the shares to Alex and Alex is not obliged to buy the shares from Lynn.

Furthermore:

  • there was no agreed price or time frame for the transfer of Bill’s shares.
  • there was no insurance in place to enable Alex to buy the shares.
  • And Alex doesn’t have enough funds to buy out Lynn and doesn’t have the capacity to borrow the money.

To further complicate matters, Lynn is entitled to the same management rights and share of profits as her deceased husband. Meanwhile Alex is doing 100% of the work and only receiving 50% of the profits.

This outcome could have been avoided if Bill and Alex had sought financial and legal advice and executed a Buy Sell agreement to protect your business ownership. It can also be funded by insurance. By using this strategy, Lynn would have received the insurance proceeds in exchange for handing over her interest in the business to Alex.

As a result, Lynn would have been fully compensated, if Bill and Alex would have taken measures to protect your business ownership which in turn would have allowed Alex to take 100% ownership of the business and received 100% of the profits.

Protecting your Business Ownership

Note: This case study highlights the importance of seeking assistance from a financial adviser and solicitor who specialize in this area about establishing a Buy Sell agreement funded by insurance. We as specialized financial advisers in facilitating the agreement to protect your business ownership can also address a range of potential issues and identify other suitable protection strategies.

💡 Tips and traps to protect your business ownership below.

Also, in this example of why to protect your business ownership, the insurance proceeds would be paid directly to Lynn.

However, different payment arrangements may be preferable for businesses set up under certain ownership structures. Or the preferred approach recommended in conjunction with your financial adviser, your solicitor and / or accountant.

💡 If you need more information or help to implement this strategy to protect your business ownership and in turn, protect your wealth, contact us today.

 

Wealth Protection Case Study 1 – Protect your Business Ownership cont

Tips and Traps

  • Most importantly, because a Buy Sell agreement affects your legal rights. It should always be prepared by a solicitor (preferably one that specializes in this area).
  • There are a number of ways to structure the ownership of insurance policies used to fund a Buy Sell agreement. Each ownership method will have different legal, tax and stamp duty implications. The ownership should be reviewed by the advising solicitor and registered tax agent.
  • It may be more cost-effective over the longer term if you pay level premiums, rather than stepped premiums that increase each year with age (see Strategy 6).
  • You should consider using insurance to protect your assets and business revenue, see below.

 

💡 If you need more information or help to establish an agreement on how to protect your business ownership in the most cost and tax-effective insurance strategy (and if you are the business owner where protecting your family and your wealth is important to you), contact us today on 08 7111 0022 or book a chat to see how we can best help you here

 

Arthur Panagis
Author, Founder, Wealth Coach and Financial Strategist

B.Bus (Accountant)
Grad Dip (Financial Planning)
Professional Certificate in Self Managed Super Funds
ASX Listed Equities Accreditation
Tax (financial) Advisor

 

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Suite 2, Level 1, 148 Greenhill Rd,
PARKSIDE SA 5063
Ph – 08 7111 0022
Email – info@fmgws.com.au

 

👀 You can read how to further protect your wealth by protecting your income and your assets here

 

 

 

 

 

 

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Disclaimer: This article is factual information only. It is not intended to imply any recommendation about any financial product(s) or to constitute tax advice. The information in the article is reliable at the time of distribution, but may not be complete or accurate in the future.

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