Q. My friend and I are in business together and have a limited company. The bank has suggested that we have Shareholder Protection as they refer to it. I am not really sure what this is and whether or not we need it in any case. What is your opinion?
A. Most people go into business to make money and to provide for themselves and their family. However, they do not think of the consequences of early death. There is no reason why your family will benefit from the work that you have put in to build up your business unless you have the appropriate agreements and potentially the life insurance cover that is needed to protect them. If, for example, you are the minor shareholder and you die, under your will your spouse may well inherit those shares. However, there is no compunction on the remaining shareholders to buy them and as a minor shareholder your spouse could easily be disenfranchised. The spouse could seek to sell to a competitor but why would a competitor buy a minority shareholding as they would have the same problem. Conversely, if your friend dies and is the majority shareholder it could be that their spouse is actually running the company, or at least in charge of it and you could be easily alienated and effectively lose what you have worked for.
I strongly agree with the bank that Shareholder Protection is absolutely essential and I would urge you to take independent financial advice from a Chartered Financial Planner who specialises in providing business financial planning advice.
Q. I have read various investment articles which frequently refer to ‘asset allocation’. I must admit to not really understanding this term, could you please enlighten me?
A. When it comes to financial planning, your money can be invested in a wide range of alternative types of investments.
These alternative investments are grouped into various categories and are referred to as Asset Classes. The three most common Asset Classes are Cash (bank or building society deposits), Fixed Interest (loans to government or large companies), and Equities (shares in companies both here and abroad).
It is the mix of these assets and the proportion of your investment that is allocated to each Asset Class that determines your “Asset Allocation”.
Your asset allocation is extremely important as it determines the level of risk you are taking and has a significant influence on the returns you can expect to receive on your investments.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
