Case Study

Business protection planning for two company directors

Case study: business protection planning for two company directors

Client profile

Two directors, both in their mid-30s and married, approached our firm when setting up their new creative agency. Leaving full-time employment to launch their own business, they wanted to ensure the right financial foundations were in place from day one. Like many new entrepreneurs, they had considered basic business costs and growth plans but had not yet thought in detail about the financial risks associated with losing a key person or the impact on company ownership.

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The challenge: safeguarding the business from unexpected events

Starting a new company comes with many risks. For the directors, the most critical concerns were:

• How the business would cope if one of them became seriously ill or died

• How to ensure ownership remained clear and disputes were avoided

• How to protect their families financially while maintaining business stability

Without proper planning, the business could face significant disruption, and the directors’ families could be exposed to financial uncertainty.

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Key person assurance

We introduced the directors to Key Person Assurance, a form of life and critical illness cover taken out by the business on a key employee or director. If the insured person were to die or be diagnosed with a critical illness, the policy would pay a lump sum to the company.

Both directors were integral to the day-to-day running and growth of the agency. We arranged policies for each, with sums assured reflecting the potential financial impact of their loss—covering revenue disruption, replacement costs, and restructuring needs. This gave the directors confidence that the business could continue operating even in the face of unexpected events.

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Shareholder protection

We also implemented a shareholder protection arrangement. This involved life cover with a cross-option agreement, allowing each director to purchase the other’s shares in the event of death.

Without this in place, the deceased director’s shares could pass to a spouse or estate, potentially creating disputes or complicating decision-making. With the protection, the surviving director could retain full control of the company, while the deceased director’s family received fair value for the shares.

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Why this was done at the outset

Putting these protections in place from day one meant the business was safeguarded before significant trading or liabilities had built up. The directors were younger and healthier, which made the cover more cost-effective. Starting the business with these protections in place also demonstrated good governance and gave reassurance to both the directors and their families.

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Potential consequences without cover

Had these measures not been implemented:

• The business could have faced serious disruption or even failure if a director was lost without funds to support the company.

• The surviving director might have had to work with a beneficiary unfamiliar with the business.

• Families could have suffered financial hardship or legal disputes over ownership and share value.

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The outcome: a strong, resilient foundation

By taking advice early and putting these protections in place, the directors ensured their business was financially resilient. They also signalled to potential investors and clients that they had proactively considered and managed key risks—a crucial step in building a credible and sustainable company.

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Next steps: protect your business and its shareholders

Whether you’re starting a new company or reviewing an existing business, taking steps to protect your key people and shareholders can safeguard your business and your family’s financial future.

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