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.
to discuss Shareholder Protection Insurance
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 the purchase of the deceased/critically ill and keep control of the business.
FAQs
for
Shareholder
Protection
Insurance
What is shareholder protection insurance?
Shareholder protection insurance is designed to help business owners fund the purchase of a deceased or critically ill shareholder’s shares. It aims to provide financial stability and continuity for the business and the remaining shareholders.
How does shareholder protection insurance work?
Each shareholder typically takes out a life insurance or life and critical illness policy on their own life. The policies are linked to a legal agreement that sets out how shares will be transferred if a claim occurs.
Who is shareholder protection insurance suitable for?
Shareholder protection insurance is usually suitable for companies with multiple shareholders who want a clear plan in place if one shareholder dies or becomes critically ill.
What happens to shares if a shareholder dies without protection?
Without shareholder protection insurance, the shares may pass to the shareholder’s family or estate. This can create uncertainty, disputes, or financial pressure for both the business and the remaining shareholders.
Is shareholder protection insurance the same as key person insurance?
No. Shareholder protection insurance is designed to fund the transfer of shares between shareholders. Key person insurance protects the business against financial loss caused by the absence of a key individual.
Does shareholder protection insurance cover critical illness?
It can. Policies can be set up to cover death only or include critical illness, depending on the needs of the shareholders and the structure of the agreement.
How much cover is needed for shareholder protection insurance?
The level of cover is usually based on the value of each shareholder’s shares. This value should be reviewed regularly to ensure the cover remains appropriate as the business grows or changes.
Is shareholder protection insurance tax efficient?
Tax treatment depends on how the policy and legal agreement are structured. Professional tax and legal advice is recommended to ensure the arrangement is set up correctly.
Do small businesses need shareholder protection insurance?
Small businesses with more than one shareholder may benefit from shareholder protection insurance, particularly where the loss of a shareholder could significantly affect control or finances.
