Building A Safe Future In a New Business

When people go into business together, they can overlook some key corporate safeguards. Stratagem Financial Planning knew just what to do when we were introduced to a pair of online and local property experts…

The case

2015 marked the start of a business partnership between two friends, who decided to set up an estate agents to challenge the local market. They gained success fairly quickly. Growth was rapid, and profits were building, which gave the two directors some financial impetus. But it also left them open to oversight; things were moving so rapidly, they hadn’t given proper consideration to what would happen if either of them were forced to leave the company.

Both were equal 50% shareholders. They were responsible for sales, expansion, and operational control. Should one of the partnership fall critically ill, or be unable to carry out their duties, the business would suffer potentially fatal damage and repercussions would be felt in their personal lives too.

It was clear they needed to address several areas; protecting them and their business, and the nice problem of how to extract excess profits without generating large personal tax bills.

The solution

The Stratagem Financial Planning team knew exactly what to recommend. We minimised their financial risk through:

  • Key Person Cover sponsored by the company. It can provide the necessary funds, if required, to cover the price of a replacement sales expert, for as long as two years in the wake of a death, serious illness or disability. Equally, they could choose how these funds are subsequently used, such as, to repay any company borrowing or to cover loss of profits. This cost as little as £40 per month to cover both directors.
  • A Relevant Life Policy sponsored by the company and offset against corporation tax, was arranged to give each director’s family a £100,000 payout if a death occurs. That cost a mere £15 per month in total.
  • Shareholder Protection. The surviving shareholder will receive £300,000 to buy-out the other’s 50% share. In addition, we ensured that all the right legal structures have been set up to support it by referring them to a specialist solicitor.
  • Director Pensions that let the directors build up funds in a low-cost environment, until they’re ready to buy some premises with their pensions. It’s paid for by monthly/year-end excess profits. Aside from diversifying finances in their own name, the pension contributions reduces their corporation tax liability.

Want to become one of our success stories? Speak to the Stratagem Financial Planning team today.