EXAMPLE CASE STUDY
Protection For Business Owners
Gary and Robbie, who are both married with young children, are the managing directors and shareholders of GR Gardens Ltd – a company that designs and manufactures novelty garden gnomes. Gary and Robbie
Gary and Robbie are well aware of the problems that can arise in respect of the ownership of the shares in the event of one of them dying or suffering a serious illness having recently witnessed the devastating financial repercussions arising from the unexpected death of a client who owned a market garden business.
Having discussed it, they want to ensure that should one of them die:
In order to ensure that, following the death of one of the shareholders (ie. Gary or Robbie), the company can remain under the same control, the shareholders establish an ownership protection arrangement. This involves:
- Each shareholder executing a will that leaves the company shares to their spouse on the first death;
- Gary and Robbie each effecting a PruProtect Business Protection Plan for a sum assured payable on serious illness or death equal to the value of that shareholder’s share – £1 million in this case;
- Each Plan being effected subject to a Business Trust for the immediate benefit of the other shareholder; and each own 50% of the shares in the company. Business is booming and they are now developing the Norwegian gnome market. In fact, they recently received a £2 million offer for sale of the business which they declined.
(a) The survivor will be able to retain complete control of the company; and
(b) The deceased’s family will receive fair compensation in the form of a cash sum.
Should one suffer a serious illness, they would wish that person, based on the severity of that illness and their circumstances, to decide whether their shares should be sold to the other shareholder/director.
Both Gary and Robbie entering a cross option and single option agreement so that:
In the event of one dying, the survivor would have the option to buy the deceased’s shares from his estate and the deceased’s legal personal representatives would have the option to sell the deceased’s shares to the surviving shareholder; or
In the event of one suffering a serious illness, the seriously ill shareholder would have the option of selling his shares to the other shareholder. (In this respect, they have decided that they prefer the seriously ill shareholder to be the decision maker rather than the other shareholder).
As our clients typically demand the utmost confidentiality the information in this case study is not based on any individual and acts only as an example of how we could potentially help.