I have recently acquired all the shares in a small limited company with an agreement with the vendor that the purchase price is payable in instalments over the next 10 years.
The company has six employees and, prior to acquiring the company, I was sales manager.
I would be grateful if you could highlight some of the areas you think that I should be considering in my new role.
Protection against the financial consequences of your death or serious illness should be a priority. If such an event were to happen, what would happen to the business, the outstanding loan and any other borrowing – business or personal- and your family?
The person from whom you bought the business is likely to also share a concern for your health. On your death or illness, he would still demand the monies owed to him – a return of part or all of the business would, I suggest, be considered only if it was performing well in which case you or your family would want to retain control or sell fora true price rather than a knockdown price.
It would make sense to arrange a life insurance and critical-illness policy sufficient to redeem any outstanding monies to the vendor on your death or occurrence of a critical illness.
As the instalments are due to finish in 10 years, a decreasing sum assured may be suitable but the question of how the policy is best written – whether under trust, assigned or with the vendor as the policyholder – would need to be considered jointly with your solicitor.
For your and your family's personal protection, I would suggest that further life and critical-illness insurance should be arranged to meet any projected shortfall between what the business and other assets would provide and what would be required.
The company should also arrange a keyperson life and critical-illness policy on yourself and any other employees whose absence would negatively affect the profits of the company.
The tax treatment of such a policy would need to be the subject of correspondence between you and your local tax inspector.
It is generally understood that if premiums on a keyperson policy are not allowed by the tax inspector as a business expense – and they would not be in your case as a controlling director – then the policy proceeds would be free from tax as a trading receipt in the company's hands and vice versa. But there will be exceptions.
From a personal point of view, you will also want to ensure your income is protected against absence from work through illness or accident and this can be arranged through an income protection policy. Your earnings and how they are comprised will be of importance with such a policy in terms of salary, benefits in kind, dividends, commission, bonuses, etc.
Once these subjects have been addressed, then there are, of course, further areas that should also receive your attention.
From your own personal point of view you will want to ensure that your retirement funding is attended to in the most tax-efficient manner.
You will want to grow your business and it could be that this can be combined with your retirement planning.
If your company does not currently provide any form of pension arrangement for your employees then this is also something that you will be required to attend to from April 2001, when stakeholder pensions are introduced for employers which have at least five employees.
At this point you will be obliged to offer your employees access to a stakeholder scheme or a pension scheme which exempts you from offering stakeholder.
Recruiting, retaining and motivating staff should also be looked at as and when affordability permits. This can bring significant benefits to the company through an increase in staff morale while at the same time being allowed in some cases as business expenses which reduce company taxation.
Group life and sickness schemes also usually enjoy lower premiums than individual plans, together with free cover levels, which offer the opportunity for benefits to be provided without the need for medical evidence.
This will undoubtedly be of interest to older members of staff and those whose medical history could exclude them from individual cover, either explicitly or through the terms offered.