Shareholder Protection Insurance

This is where a small business operates as a private company and there are directors and shareholders. There are many possible outcomes on the death or critical illness of a shareholder.

Being unable to buy shares or having no agreement in place to manage this situation could lead to expensive legal action, loss of control of the business, family members becoming involved in the business, or shares sold to a potentially unsuitable buyer or even a competitor.

Shareholder protection can eliminate these problems.

In the event of a business owner dying or becoming critically ill during the policy term, shareholder protection can provide a sum of money for the remaining business owners. This means that in the event of a claim the policy could pay out an amount sufficient to help the surviving shareholders to help purchase of the deceased/critically ill and keep control of the business.

Case Study

The case study below illustrates the advantages for having shareholder protection in place.

FIRST MOVE ESTATE AGENT

Bill and Bob run an estate agent which is worth £50,000.

The company has been set up on a 50/50 basis and share responsibilities, running costs and profits equally.

Bill and Bob are both marries with children

Bill and Bob set up a shareholder protection policy for £25,000 each

Bill
£25,000

Bob
£25,000

Each partner creates a trust and signs a cross option agreement.

BOB DIES

Life policy pays out sum assured to the trustees who pay Bill the surviving partner

Shares pass to Bob’s wife

Bill receives £25,000

Bob’s wife receives Bob’s Shares

The £25,000 cash is given to Bob’s wife in return for the shares and Bill continues to keep control of the business