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Home » Business » Financial Advice » Business Protection » Shareholder Protection Insurance

A lot can impact a business. Issues with supply chain, poor sales and the weather are just a few examples. One of the most serious events can be the loss of a shareholder. With many businesses relying on the expertise and/or equity they provide, the loss of a shareholder through death or critical illness can have a devastating impact on the future of the company.

Without a plan in place a shareholder’s equity would pass to their estate, potentially meaning your business is part-owned by someone with no interest in the future of the company. Shareholder Protection Insurance provides surviving shareholders with the funds to purchase the shares from a third-party.

  • Protect your business
  • Pays out in the event of a shareholder’s death
  • Help build succession planning into your business plan
  • Ensures the beneficiary’s estate is protected

The Alan Boswell Group Difference

ABG Difference

Business protection policies are designed to cover the financial impact of the death or serious illness of personnel within the organisation.

Alan Boswell Group will provide advice on the full suite of business protection policies available to you and your business and can recommend  a solution tailored to your needs.

Shareholder Protection in detail

Shareholder Protection in detail

Most wills are structured with family in mind and so it is no surprise that a person’s shares would usually form part of that estate. But what does that mean for the business?

Without good planning this could result in a company’s shares passing to a family member who has little or no interest in the business. This can have a devastating impact on the business. If your business has a few key shareholders it is vitally important that this has been considered and planned for.

Shareholder Protection insurance will pay out a lump-sum equitable to the value of the shares held by a shareholder to the business, providing them with the funds to purchase the deceased shares.

How does shareholder protection insurance work?

A shareholder protection policy will pay out a lump sum to a named individual or a group of beneficiaries in the event of a shareholders death to ensure they have the funds to purchase the equity of the person who passes away. It can also include a critical illness element in the event a shareholder can no longer work due to a critical illness or injury.

Usually a ‘cross-option agreement’ will need to be put in place to ensure the sale of the shares runs smoothly. It guarantees that if one of the shareholders covered by the policy dies or is critically ill, there would be one or more shareholders that are willing to buy the shares. Often this is completed through a trust.

It is also important that a fair distribution of costs and benefits can be demonstrated and a specific methodology is used to achieve this.

Considering there are multiple tax implications, trusts and legal documents to put in place and decisions on who pays the policy, it is crucial that you seek advice when considering protection for your shareholders.

FAQ's

  • Yes, if paid for by the business. Often shareholder protection is purchased by the individual and therefore payments would be made from previously taxed income. But if the business pay the premiums then it is taxed as a benefit-in-kind.

  • There are many ways to evaluate a company value, including applying a multiple of the net profit of the company. Also, Market Capitalisation is an option for businesses large enough to have issued shares and is the value of each share times the number of shares available.

  • No, there is no legal requirement for shareholder protection. But, it makes good business sense to ensure that equity in the business is not owned by people with little to no interest in the success of the firm.

  • Relevant life insurance does not include critical illness cover and is designed to pay out to the estate of the deceased.

    Shareholder protection, alongside a cross option agreement is specifically used to enable the remaining shareholders to purchase the shares of the deceased at a fair and agreed price.

  • If a partner within a partnership protection policy passes away then this would trigger a claim. Assuming a successful claim this would result in a pay-out being made to the business to be used to purchase the share of the partnership from the deceased’s beneficiary – usually their partner or children.

    If a partner withdraws from a partnership the policy would have to be cancelled. If the share of the partnership has been sold to another individual a new policy could, of course, be opened up in the new partner’s name.

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