The Ultimate Guide to Shareholder Protection Insurance
Click play to watch the video explaining more about shareholder protection insurance
The video below explains more about shareholder protection policies, who they can help, how they could help you and how they work.
The risks of not having shareholder protection
The death of a business owner or shareholder can be catastrophic for businesses that aren’t prepared – especially if the other partners in the business couldn’t afford to purchase their share. Without appropriate protection, an untimely death could put an entire business at risk. Without the relevant protection insurance, shares can pass to the deceased family – individuals that may have no interest in the business, and might prefer a lump sum or another form of recompense.
In some cases, the deceased family may also be reluctant to sell the shares back to the other shareholders, creating difficult circumstances for the future of the business. The shares could even end up being held by a competitor, or someone who has a different vision for the company entirely.
Benefits for all shareholders
Shareholder protection insurance helps to ensure continuity – a crucial consideration that helps to ensure the future of the organisation. By putting one of these policies in place, shareholders can gain access to funds in order to purchase shares back from family members, avoiding drawing on their own personal funds.
The policy also helps prevent the shares from falling into the wrong hands – namely competitors or other hostile parties. A cross-option agreement, set up with all directors, partners and shareholders, enables the remaining parties to have first refusal on the deceased’s shares,
Best of all, the documentation involved in these policies often allows the transactions to be made tax-efficiently, for a smooth transition that maintains stability across the business in a naturally turbulent time.
Read more about clients we have helped with our shareholder protection policies.
The policies are structured in a way which requires each individual shareholder to take out a policy themselves – it’s not a group setup. They will pay the premiums out of their own taxed income, and can’t claim tax relief on them.
Any proceeds from the policies don’t usually form part of the deceased’s estate, meaning they are exempt from inheritance tax issues.
Need to speak to an expert on tax-efficient business protection issues? Contact our team to find out how shareholder protection could help secure your business’ future.