Shareholder Protection Insurance

What is shareholder protection?

Shareholder protection is a term insurance policy providing 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 allows the remaining shareholders to purchase the affected shareholder’s stake in the business, ensuring business stability and continuity.

Protect your business and secure your shareholder funds

Who does shareholder protection insurance protect?

To allow for such an outcome, shareholder protection cover is taken out. 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 offers a comprehensive range of benefits. It includes the assurance of financial security for surviving shareholders. Shareholder protection 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, 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.

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 main 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 specific to the business’s circumstances, regular reviews of the cover, business value, shareholdings and legal documentation are required to make sure the cover remains suitable.

Why Choose Francis Clark Financial Planning?

With our wealth of experience and expertise in financial planning, at Francis Clark Financial Planning, we can assist you in designing a tailored shareholder protection insurance plan that aligns with your business’s unique needs and objectives. Protect your business, secure your shareholder funds, and gain the peace of mind you deserve. Contact our team of dedicated financial advisers and safeguard the future of your business today. 

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To book your initial consultation (no cost or obligation), please fill in the form below with your details and one of our financial planning experts will be in touch.

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Shareholder Protection FAQs

  • Why is shareholder protection insurance important for my business?

    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.

  • How does shareholder protection insurance work, and who can benefit from it?

    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.

  • What factors should I consider when determining the level of shareholder protection needed?

    The level of shareholder protection insurance required depends on several factors, including the business’s valuation, the number of shareholders, the potential financial impact of a shareholder’s absence, and the buyout terms. At Francis Clark Financial Planning, our expert advisers can help assess your specific circumstances and determine the appropriate coverage. 

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