Chapter 11 - Business Protection Flashcards
Why would a large cash payment to accompany from McKee purchase insurance covering a major shareholder be an issue?
This could restrict the amount of business property relief available and create an Heritance tax problem
What does each partners capital account reflect in a business?
This reflects any profits retained by the business
In an equal partners business when one partner dies, unexpectedly, without any partnership agreement in place, what if anything with the deceased estate receive?
They would receive disproportionate amount of the value of the business as well as that persons capital accounts value
What is a key method used in business planning to ensure the transfer of a deceased shareholders shares
A cross options agreement which is where the shareholders of the business have an option to buy the shares from the estate of a deceased shareholder, and the estate has an option to sell the shares and if either party decided to exercise, their right than the other party would be bound to comply
What are the three main ways in which shareholder protection may be arranged
Buy and sell agreement – which is where there is a previously determined purchase price at which the deceased, as must sell the shares to the remaining business survivors, and the latter of must buy
Cross option agreement-this is where both parties have the right to Eva by yourself, and if one decides to exercise this right then the other must comply
Automatic accrual-this is, where is the final selling the shareholders simply leave the shares to the fellow shareholders in the will, which means that the family of the deceased shareholders would need to be compensated. However, the control of the company is safely in the hands of the survivors
When paying for key person insurance, such premiums can only be treated as a business expense for tax purposes if they are incurred as
Wholly and exclusively for the purposes of the business
What are the three main methods are providing critical illness cover in the event that a shareholder contracts, a serious illness
Whole of life policies, which pay out on either death or serious illness, which ever occurs first,
term policy is the payout on death or serious illness. Within the policy term
, a separate or standalone, CIC policy would be appropriate for assurance, provides only life cover.
These policies should be written on the trust where the beneficiaries are the colleagues of the L director, who can then buyout the shares of the afflicted shareholders family
A partnership will automatically be dissolved on death, unless there is what
A clause in the partnership agreement, setting out alternative course of action
When calculating the amount of cover that should be taken out on the Norm business, owning key employee, one method is typically used which is
The portion of profit formula
What main problems may affect a company if it loses one of its key employees
Replacement cost, business, interruptions, financial implications, lots of profits
What are the main two ways of calculating key person, sums assured?
Multi pull of salary and proportion of profits
What are the three elements of a share protection arrangement?
Transfer of shares agreement
Funding for the purchase via insurance
Documentation to ensure the funds are received three of IHT
What are the possible partnership protection arrangements?
Accrued, cross option and buy and sale agreement
How could a large cash payment to a company from a key person insurance, covering a major shareholder affect?
Restrict the amount of business property relief available and create inheritance tax problem
Essentially, just remember that key persons insurance can cause IHT issues and business property relief issues
Across option arrangement for a partnership is most beneficial for situations when what
Preserving business property relief for inheritance tax purposes
