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Shareholder protection

In the interests of financial security, business stability, and continuity particularly for private limited companies where there may only be a small number of principal shareholders – it is essential to provide a safety net if a shareholder dies, or becomes seriously ill.

Shareholder protection sets out the procedures and life insurance policies to help ensure that you retain control, and have the necessary funds to do so and helps:

  • Avoid having to draw on funds set aside for other purposes
  • Maintain business stability and continuity and retain confidence of employees and customers
  • Ensure the dependants of the critically ill or deceased shareholder are financially secure
  • Arrange for the most appropriate transfer of shares to surviving shareholders, or the company, at a fair commercial price
  • Set up insurance policies to provide the funds to purchase the shares
  • Prevent the sale of shares to hostile parties, or competitors
  • Documentation to enable all transactions to be made tax-efficiently

Possible outcomes if not protected by shareholder protection:

  • The company or other shareholders will want to retain control by buying lost shares – but may not have the resources to do so
  • The shares may be taken over by someone who does not share the company’s objectives – and may even be a competitor
  • Shares may go to the deceased’s family, which has no interest in the business and would prefer a cash sum
  • The company or other shareholders will want to retain control by buying lost shares – but may not have the resources to do so
  • The shares may be taken over by someone who does not share the company’s objectives – and may even be a competitor
  • Shareholders may have important voting rights, which directly affect the running of the business. Losing a shareholder would normally result in these rights passing to the deceased’s shareholder’s beneficiaries, such as their family

Are there other benefits to shareholder protection?

Yes, the Company Directors may be able to reduce their need for personal life and illness insurance to protect their dependents while at the same time protecting their fellow shareholders.

The plans can also be set up in Trust for inheritance tax savings using a cross option agreement.

Experienced advice from an independent financial adviser is essential.

Further questions on shareholder protection?

Please do not hesitate to contact us if you have questions.  Call us on 01582 839280 or Email us.