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Whilst all small businesses are different, the one thing they all have in common is they rely on key individuals to operate.

How do you think your business would be affected should your CEO, Managing Director, Chairman (or any key person) pass away or fall critically ill?

Whilst it’s understandable that dedicating time to planning for hypothetical scenarios isn’t high on the list of priorities for busy business owners, the financial and logistical harm this scenario can cause makes it well worthwhile.

A recent Legal & General survey highlighted notable cause for concern – 53% of UK small businesses surveyed believed they would cease trading in less than a year and 73% of sole traders say they would be forced to stop trading immediately should a key person be no longer be able to fulfil their role.

Business Protection

Arguably the two biggest challenges facing a business when a sudden loss occurs is the immediate financial impact (particularly if that person has guaranteed a loan) and the transferring of business assets.

A particularly worrying statistic in the survey is that over half of business owners have no instructions in their will for how their shares should be dealt with in the event of their death.

A sudden death can destabilise a business, especially where there is no clear succession plan in place.  If shares are passed on to the deceased’s family, the remaining business owners could lose control of the business. This can be made all the more complicated if the family choose to sell their share of the company to a third party (perhaps even a competitor) or decide to become involved in the business operations without the sufficient knowledge or experience to do so.

The best way to avoid this risk is to update your will to include clear instructions as to the distribution of your business assets. Depending on your tax position, it may be beneficial to incorporate a discretionary trust for any assets that attract business property relief for inheritance tax, as this can lead to tax savings and ultimately allow flexibility in relation to what is to be done with the business.

It’s also a good idea to ensure the Will is set up in conjunction with a review of any shareholder’s agreement and articles of association, to ensure it is possible for the terms of the Will to be carried out.

Legal & General’s survey also found that nearly four in ten of SMEs worth over £5million had no share protection insurance. If share protection is not in place, existing shareholders may be forced to purchase the deceased’s shares with their own personal wealth, or if this is not possible, be forced to take out a loan to retain control of the business.

Another vital consideration for any business owner would be to take out business protection and/or key man insurance, which can help the business pay any outstanding unprotected loans or debts.  Key man insurance can also help protect against loss of profits and help to mitigate the costs associated with recruiting or training a replacement for the person who has died. Business owners should seek to obtain independent financial advice in relation to their business protection needs, to ensure that the policies meet their needs.

Where to Start?

The first step any business needs to take is to open a dialogue with the key members of the business and assess the impact these unforeseen scenarios would have on the business then seek professional advice on what the best course of action would be to protect your business.

For advice, guidance and support on Wills, Trusts and Estate Planning for your business, contact one of our solicitors at Gorvins today. We will listen to your problem and advise you of the next steps. Contact us on 0161 930 5151 or email us at

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