Business protection encompasses more than just securing physical assets or intellectual property; it involves safeguarding the individuals who are pivotal to your practice’s success.
By implementing measures such as key person insurance, shareholder agreements, and relevant life policies, you can secure your law firm’s operations, protect stakeholders, and maintain business stability and growth.
Key person insurance
A key person is an individual whose expertise, experience, leadership, or industry connections are vital to your firm’s success and stability, and whose absence would significantly impact operations and profitability. Typically this will be key fee earners and/or those with specialist skills that are not easy to replace.
Key person protection can help minimise the disruption to the firm if a ‘key’ individual is absent and unable to contribute to their role due to a long-term illness, the diagnosis of a critical illness, an accident, or in the event of their death. An insurance policy can provide a cash injection to the practice, from the proceeds of a claim and this will also instil confidence in the business’ clients, suppliers, lenders, and/or investors if appropriate.
Shareholder’s agreements and insurance
For any law firm with multiple shareholders, a shareholders’ agreement is essential, as it establishes a clear and fair framework for managing the company, protecting all shareholders’ interests, and ensuring smooth operations. A well-drafted shareholders’ agreement can help to prevent disputes and foster a harmonious business environment. The agreement can also provide a clear plan for how the shares will be handled in the event of a shareholder’s death, disability, or exit from the company, ensuring business continuity and preventing disruption. This is imperative for law firms where the shareholders must be qualified solicitors, unless operating as an Alternative Business Structure (ABS).
Shareholder insurance provides financial protection if a shareholder dies or becomes critically ill. It enables the remaining shareholders or the law firm to buy the shares of the affected shareholder, maintaining control and stability within the company. Specialist advice will ensure the policy structure, associated trusts and premium allocation are correctly implemented and do not create unplanned tax liabilities.
Relevant Life insurance
Relevant Life insurance is an excellent option for small to medium-sized law firms, who don’t have enough employees to justify a group life insurance scheme. A Relevant Life Policy (RLP), set up and paid for by the employers, is a type of life insurance designed for employers to provide individual death-in-service benefits to their employees, offering financial protection for employees’ families and tax efficiencies for the business. Company directors can be eligible too. Providing such a benefit can enhance a law firm’s benefits package and demonstrate commitment to employee welfare, helping to attract and retain top talent.
An RLP can be implemented by various types of businesses and organisations:
Limited company – for their employees, including directors who are on the payroll.
Limited Liability Partnerships (LLPs) – for salaried partners and employees.
Sole traders and partnerships – for their employees, but they cannot take out a policy for themselves.
Following the 2024 Autumn Budget, there may be a number of changes within law firms including potential company restructures, and so any existing arrangements must be reviewed to establish ongoing suitability and appropriate policy ownership.
