The untimely death of a Company Director is undoubtedly an extremely harrowing and emotional time for their family and friends but also their colleagues in business.
From a business perspective, the death of a Director or a large shareholder can cause major financial problems for;
1. The surviving Directors and the company at large, and
2. The deceased’s next of kin.
1. Surviving Directors and the company at large
As well as the personal tragedy of the death of a Director, the surviving Directors and the company face a number of serious financial challenges.
Following the premature death of a Director their company shares will normally become part of their estate. For example, they could become the property of the deceased’s spouse or one of their children. This can cause problems for the organisation, particularly if the deceased shareholder owns a large percentage of the organisation.
The new shareholder may have little business knowledge or indeed may wish to move the company in new and unwelcome directions. If for instance, the deceased shareholder owned more than 50% of the company, their next of kin would become the majority shareholder. This individual may be someone the existing Directors do not wish to have the final or indeed any say in the firms decision making process.
2. Next of kin
As well as the death of a loved one, their next of kin could face some very difficult decisions. They may be in full time employment in a different organisation and may not be interested in taking up the Director’s role and prefer to take the shareholding’s cash value. However, the company may not have the money readily available to buy out the deceased Director’s shareholding from them.
As such, both parties are placed in a very unsatisfactory position.
A simple solution to the business problems caused by the death of a Director is an easily available and relatively inexpensive insurance product: Co-Directors insurance.
Of course the upset and anguish caused by the death of a colleague can never be compensated for, but by taking out a Co-Directors insurance policy you can limit the financial damage and disruption caused by the untimely death of a Company Director.
The ultimate aim of a Co-Directors insurance policy is that it allows you to put the structures, processes and monetary agreements in place now, to protect your business financially in the face of a premature death of a Director in your organisation.
The main benefits of a Co-Directors insurance policy include:
1. The surviving Directors remain in full control of the business.
The policy proceeds from the Co-Directors insurance policy are used by the surviving Directors to purchase the deceased Director’s shareholding from their estate. This ensures the continuation of the company’s operations with the minimum disruption.
2. The deceased Director’s estate will then receive the monetary value of the shareholding.
If you are the director of a limited company with other shareholders then you should really consider taking out a co-directors insurance policy to protect against the above eventualities. The policy itself is a simple life insurance or life assurance policy with a bit of legal structure on it informing of how the funds are to be used and what agreements are put in place should another company director die. Talk to you financial advisor today about Co-Directors Insurance.
Pol O Murchu is a leading Irish Financial Advisor, Insurance Broker and Mortgage Broker. His company Heritage Insurance Brokers [http://www.heritageinsurancebrokers.ie] provides clients with a range of Insurance and Financial Products to suit their every need. He specialises in Life Insurance, Life Assurance [http://www.heritageinsurancebrokers.ie/insurance/life_insurance_term_assurance.html], Mortgage Protection, Pensions, Investments, Mortgages, Health Insurance and a range of both personal and business insurance products. To get more information on any of our products contact us today.
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