Business succession planning

1. Business succession planning Understanding the needs of business owners and their families <Insert name and/or date>

2. Partnership or shareholder cover Establishing needs Protection for: • Thebusiness’sfuture • Control in the right hands • Thepartner or shareholder’s family • Making sure the right people have the cash at the right time An opportunity for advisers to develop professional connections

3. Risk of one death before age 65 As firms grow, the risk of one employee dying can become significant Number of employees Age Source: England and Wales Life Tables, 2011 These percentages are based on the average life expectancy for male and females at these age ranges

4. The “Company Will” Determining the destination of your business assets Without Business Protection: • Peter Nichols’ shares pass to his wife Paula Nichols Shares • David Smith and Brian Jones are the surviving directors • Lose total control of Peter’s share • Can they afford to buy the shares? • Will Paula sell her shares? • How will the bank react? The surviving directors could potentially lose control following the loss of one of the business owners

5. Business succession: the problem • Not an exact science, different valuation methods • No established trading markets for private limited company shares • Rights attaching to shares • A controlling or minority interest? • Not freely marketable • Prevailing circumstances • How big a cheque would I have to write today? • Company auditor should be consulted

6. Business succession – sole traders • Really a question of family compensation • Business owner takes out a policy on their own life • Written into trust for the family • For one person family limited companies, consider a Relevant Life Policy

7. Business succession – partnerships Flexibility is essential for larger arrangements • Each person takes out a policy on their own life • Written into trust for the remaining partners or shareholders • A business trust allows for future changes to the business structure to cope with new or retiring partners and even incorporation

8. Business succession – limited companies Flexibility is essential for larger arrangements • Each person takes out a policy on their own life • Written into trust for the remaining partners or shareholders • A business trust allows for future changes to the business’s structure

9. Life assured Arranging the policies An example: NSJ Ltd Policy A Potential beneficiary Business Trust Potential beneficiary Potential beneficiary

10. How is partnership or shareholder cover set up? A purely commercial arrangement

11. Price Market value: fair but keep cover up-to-date Specified value: certainty but needs review If one side exercises option other side is bound Option to continuing partners/legal personal representatives Cross option agreement Ensuring fairness for all concerned

12. Lifecover Deathbenefit David Smith and Brian Jones Shares Will Cash Shares Cross-option agreement The cross option agreement Providing certainty for all parties Peter Nichols Paula Nichols

13. Essential ingredients Summary Business succession planning • Cash • Control • Compulsion • Certainty

14. PruProtect for shareholder and partnership cover • Disability Cover for Business tailored to the needs of the modern business • Guaranteed Insurability Options to cater for the growing business • Local face-to-face support • Specialist business protection team • Financial Strength: AA rated by Standard & Poors • PruProtect business is written through the Prudential Assurance Company Ltd (PAC) benefitting from the scale, diversity and solvency of PAC

15. Thank you