Business ProtectionWhat’s it all about?

Brian Hosford

Jargon

Purpose

Shareholders

Operations

Family / Dependants

Protect the Business

Ask the relevant questions

Discuss the relevant solutions

Plan for the relevant risk

Relevance

Partnership Insurance

Co-Directors’ (Shareholders’) Insurance

Individual

Corporate

KeyPerson Insurance

Simplicity

Buy & Sell Agreement

Arranging Cover

Own Life in Trust

Life of Another

Premiums

Taxation

Partnership / Director Cover

Partnership Cover

JTS & CoValue €3m

33.33%€1m

33.33%€1m

33.33%€1m

Partnership / Director Cover

Cover required = €3m

€1m per Partner / Director

Own Life in Trust

Partnership / Director Cover

Partnership Cover

Tom

€1m

Jim

€1m

Sean

€1m

€1m CoverIn Trust forSean & Tom

€1m CoverIn Trust forSean & Jim

€1m CoverIn Trust forJim & Tom

Partnership / Director Cover

Tom

Jim

Sean

Dies

€500K

€500K

Partnership CoverPartnership / Director Cover

Tom

Jim

Sean’s

Estate

€500K

€500K

Partnership CoverPartnership / Director Cover

JTS & CoValue €3m

50%€1.5M

50%€1.5M

Partnership CoverPartnership / Director Cover

Life of Another

Manageable for 2/3 Lives

Own Life in Trust

Less complex for 4+ Lives

Type of Cover

Partner / Director AOwn Life Cover

Partner / Director BOwn Life Cover

Partner / Director COwn Life Cover

Partner / Director DOwn Life Cover

In Trust for B, C & D

•Simple arrangement

•Funds end up in the right hands

•Not a “correct” distribution of cost

•Flexible – easy to add partners/directors

Own Life in Trust

In Trust for A, C & D

In Trust for A, B & D In Trust for A, B & C

Partner / Director A

Life Cover on B Life Cover on C Life Cover on D

Partner / Director B

Life Cover on A Life Cover on C Life Cover on D

Partner / Director C Partner / Director D

Life Cover on CLife Cover on BLife Cover on ALife Cover on DLife Cover on BLife Cover on A

•A large number of policies required

•Funds end up in the right hands

•“Correct” Distribution of cost

•Inflexible when adding a new life

Life of Another

Partnership Act 1890If NO other specific agreementPartnership dissolved on death of partnerDeceased partner’s share is debt due

Partnership AgreementWrittenConduct of the businessObligations on death of partner?

Goodwill

Partnership – The Specifics

Agreement – On Death, Pay Back :Capital invested in the business

Share of assets

Undrawn profits

Goodwill (not automatic accrual)

Specific Payment DuePartnership InsuranceBuy & Sell Agreement

Partnership – The Specifics

Paying the PremiumsPersonal ArrangementPartnership pays premiums = Draw DownNo tax advantage to partner or practice

GoodwillSelf InsureRetirement Annuity Contract (Tax Relief)

Ill HealthPersonal Income Protection PolicyCompletes the tax efficient cover

Partnership – The Specifics

Articles of Association

Quantifying the Initial CoverValuing the Business

Profits

Assets

Regular Revaluations

Co-Directors’ – The Specifics

Common Threads

Succession Planning

Principals’ Control of Business Retained

Business Continuity

Protection of Family / Dependants

Framework / Capital for Buy & Sell

Buy & Sell Agreement

Compels Surviving Partners/DirectorsBuy Share of Business

Compels Principal’s DependantsSell Share of Business

Paying the Premium

Arrangement is personal

Company / Partnership Pays PremiumsTreated as income

No tax advantage forDirector / Partner

Company / Partnership

Corporate Co-Directors’ Cover

How does it work?Similar to Co-Directors Insurance BUT DifferentCompany effects insurance ANDBuys Back Company Shares on Death of Director

What is the structureCompany effects Contingent Purchase Order with each Director(Buy & Sell Agreement)Company Pays Premiums

Any Special Considerations?Power of Company to Buy Back Own SharesTaxation Treatment of Buy Back

Corporate Co-Directors’ Cover

ABCD Ltd Issued Shares €12m

Director BShares €3m

Director DShares €3m

Director CShares €3m

Director AShares €3m

Corporate Co-Directors’ Cover

ABCD Ltd Issued Shares €12m

Director BShares €3m

Director DShares €3m

Director CShares €3m

Director ADeceased

€3m Shares Cancelled

€3m to Director A’s

Estate

Corporate Co-Directors’ Cover

ABCD Ltd Issued Shares €12m

Director BShares €4m

Director DShares €4m

Director CShares €4m

Does it suit every company?NO

Family owned companies do not always fit the billIf a parent intends passing on the company to son/daughterIf all shares are held by the parent

BUTIf some shares are held by son/daughterParent and/or other childrenMight want to consider

Corporate Co-Directors’ Cover

KeyPerson Insurance

What and Why?

Procedures

Taxation

Family Companies

What is KeyPerson Insurance?Safeguards CompanyPotential Financial ImpactDeath or Critical Illness of a Key Employee or Director

Why is it Needed?Repayment of Loans Loss of Profits Loss of ConfidenceLoss of Management ExperienceRecruitment Costs

KeyPerson Insurance

ProceduresBoard Resolution

Company proposes for policy

Life of Another

Company Pays Premiums

Keyperson No Personal Interest

KeyPerson – The Mechanics

TaxationPremiums Tax Deductible - Strict Revenue Criteria

If Premiums NOT Tax Deductible

Benefit Generally Treated as Capital Receipt

BUT Depends on

Repay Loans or Replace Profits

Each Case is Different

KeyPerson – The Mechanics

GeneralSeparate Policies for Separate Purposes

Defined Term on Cover

Family Companies

Is Cover to Benefit Family or Company?

Personal Cover More Appropriate?

KeyPerson – The Mechanics

Sample Report LibraryPartnership Report

Co-Director Report

Corporate Co-Director Report

KeyPerson Report

Directors' Buy And Sell Agreement

Partners' Buy And Sell Agreement

Corporate Buy And Sell Agreement

Declaration of Trust

Business Protection

Executive Income Protection

Executive Term Insurance

Linked To Pension?

Group Protection

Often Opportunities

What Else