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By putting adequate shareholder protection insurance in place, you could make sure the business gets the funds to buy back the shares from a seriously ill shareholder, or in the unfortunate event of their premature death, the deceased’s estate. It’s a plan where all parties, clearly benefit:
- The remaining directors can retain ownership of the company and provide continuity for the business.
- The seriously ill shareholder, or their estate, get fair value for their share of the business.
- Using an appropriate agreement, makes sure any transactions are tax efficient.
- The deceased’s successor is not obliged to become involved in the business.
- The seriously ill shareholder, or the deceased shareholder’s estate, receive a capital lump sum for the value of the shareholding.
How To Set Up Your Shareholder Protection Insurance
The death or serious illness of a shareholder can have major repercussions for the future of a company. It can cause immediate financial hardship for the remaining shareholders and maybe even loss of control of the company. In essence, the death or serious illness of a shareholder can potentially jeopardise the future of the company and can have major implications for the remaining shareholders. It, therefore, makes sense, to act on getting the right cover in place and below we outline your options:
Personal Shareholder Protection
Personal Shareholder Protection allows the shareholders of a limited company to provide funds to purchase the share of a deceased or seriously ill shareholder from their personal representatives. The life assurance contracts are affected by the shareholders personally. This ensures the surviving shareholders retain control of their business.
Corporate Shareholder Protection
Where the company’s constitution allows for the company to be able to buy back its own shares then Corporate Shareholder Protection applies.
This is an arrangement whereby the company agrees with each shareholder to buy back their shares from their personal representatives in the event of serious illness, or death, with the insurance cost being borne by the company. This ensures security for the Company and peace of mind for all shareholders and their family/dependents.