Shareholder protection insurance
What is shareholder protection insurance?
Shareholder protection insurance provides a capital sum to enable shareholding directors or business partners to purchase shares from critically ill or deceased shareholders. This allows them to retain control of the business and guarantee continuity.
If a shareholder or owner dies, the recipient of their share of the business would normally be determined by either the terms of their will or the laws of intestacy. This can cause issues if the beneficiary of the shares has no interest in the business or wants to sell the share to a third party.
Shareholder protection insurance allows the remaining shareholders to purchase the affected shareholder’s stake in the business, ensuring business stability and continuity.
Who is shareholder protection insurance for?
Each shareholder holds a policy on their own life written in trust for the benefit of the remaining shareholders.
The business then needs to adopt appropriate legal agreements setting out what happens to each shareholders’ shares on their death or critical illness.
A cross option agreement can be used to give each party the option to buy and sell shares as required.
Key benefits of shareholder protection insurance
Shareholder protection insurance provides assurance of financial security for surviving shareholders. It plays a crucial role in preserving business continuity, whilst helping with the establishment of fair share valuations.
There is also the potential for tax-efficient payouts. Moreover, it provides the peace of mind that comes with knowing your business and its stakeholders are well-protected during challenging times.
By implementing shareholder protection insurance, surviving shareholders or owners can retain control of the business and the deceased owner’s dependents have a willing buyer and a capital sum rather than a share of the business.
FAQs about shareholder protection insurance
Shareholder protection insurance is usually set up under a trust. The trust works together with the legally binding documents to assist with the required outcome of the shareholder protection.
A trust has the following benefits:
- It identifies who the beneficiaries should be
- The chosen beneficiaries will receive the benefit quickly without the need for probate or prior payment of inheritance tax
- The amounts paid to beneficiaries are generally free from inheritance tax
Whilst shareholder protection will be put in place for an appropriate length of time, regular reviews of the cover, business value, shareholdings and legal documentation are required to make sure the cover remains suitable.
Shareholder protection insurance is essential for your business, providing financial security and ensuring continuity in case a shareholder passes away or becomes critically ill.
It prevents disruptions, maintains control, and promotes fairness, offering peace of mind for long-term planning. It safeguards the stability and decision-making processes of an organisation.
Shareholder protection insurance typically involves a legal agreement and life or critical illness policies. If a shareholder passes away or becomes critically ill, the policy payout is used to buy their shares from their estate or beneficiaries. This ensures that the remaining shareholders maintain control of the business.
Business owners, shareholders and partners in companies of all sizes are able to benefit from our shareholder protection insurance.
The level of shareholder protection insurance depends on several factors, including the business valuation, the number of shareholders, the potential financial impact of a shareholder’s absence, and the buyout terms.
How can we help?
Get in touch for advice about shareholder protection from one of our qualified financial planners.