Shareholder’s Protection

shareholders

There are many people who start business and look at the succession matters very closely. Many big businesses are left to family members who are expected to successfully continue to build the business which has already been established. However it is never a guarantee that the children will take over the business especially if they have no interest or prefer a different career path. In this case, the owner of the business will have to look for another option, so as to ensure that the business will not fail and that the family will remain together. It is therefore important to have shareholders protected if one decides to get a business partner, so that their interests can be taken care of, should either of them pass away.

Here is an example of Mr. Diamond and Mr. Chung

Mr. Diamond and Mr. Chung are 50 years of age and are joint owners of a trading company in Kowloon, Hong Kong. Their 15-year old company is worth more than US$10 million. They are both married and their wives stay at home. They both have children but unfortunately none are interested in the family business.

Mr. Diamond and Mr. Chung have successfully ran the business for the most part of their lives and they fear that the business would fail should anything unfortunate happen to either of them. How they will solve this matter, they wondered.

After pondering about it, they both decided to buy a $1.5 million premium Universal Life Plan under the buy-sell agreement which gave them coverage of US$5 million each. Should anything unfortunate happen to either of them, the agreement will see to it that the proceeds will be used to purchase over the share from the other partner and the company will continue to operate. Alternatively, should the partners decide to sell or shut down the company in the future, the life plan will be in a position to generate a fixed 2 percent on premiums. This will therefore be a practical investment for their company and after all the premiums paid are also tax deductible.