Shareholder Protection

Shareholder Protection is a policy or a number of policies set up to protect each shareholder in the event of another shareholder's death or critical illness. The risk to a company without shareholder protection is very serious and can ruin a company very quickly. In a company without shareholder protection arranged. If a shareholder dies, their next of kin would normally become the new owner of the share's and will therefore become the new director, this can cause a number of serious problems.

Firstly the shares inherited can be sold to an undesirable third party at a value not concurrent to the company value, in these circumstances the value of all company shares would decrease making the remaining director at financial risk, also the new director may not be someone welcome on the board.

Secondly, the family member could become a decision maker within the company having a say in the day to day running of a business they have no prior knowledge of or are not welcome on the board.

Thirdly, a common problem is where the deceased was a key person to the success of the company, therefore their death would impact the overall company value and decrease the remaining directors share value and ability to sell or continue.

A shareholder protection insurance can solve all these problems. It would insure against the first two problems by enabling a company to buy the shares of a deceased without impacting their cash flow in anyway. (This option would need a shareholder agreement between the director giving the company first refusal to buy any shares of a deceased, the insurance amount would cover the cost of them share making it a seamless transaction.

In the event of a key person dying, a shareholder protection policy can fill the gap in the companies lost profits, meaning the company maintain their value prior to the key person dying and would enable them to recruit a new key person to keep the company going in the long term.

 

Without shareholder protection, all directors are at risk and have a hidden burden that could have serious impact if they do not take out the relevant policy before it is too late.

 

Please feel free to watch the below short film which gives a good example of how not having shareholder protection insurance can effect a company.

 

Click here to watch the video. (2 minute video)

Click here to watch the video.  (7 minute video)

 

Please fill in the form on the right hand side with each shareholder and we will be able to quote. Or alternatively call us on 01702 219560 for shareholder protection advice.

Why do I need Shareholder Protection Insurance?

Shareholders acquire shareholder protection insurance because they want to protect their welfare. Shareholder protection insurance also helps other shareholders settle any future problems say for instance the death of one of the shareholders or when a holder gets serious illness. The help means, the other shareholder will be provided with cash which can be utilized in buying the shares of the dead or sick shareholder.
However, the most benefited people are the family members of the insured shareholder who will receive the inheritance intended for them the quickest means possible while avoiding disruption of company’s business transaction.

Shareholder Protection Insurance aims to protect not just the family and the affected shareholder himself, but the welfare of the entire company if selling and transferring take place. Shareholder protection insurance provides a lump sum amount of money (normally equivalent to the share value) in the event of a claim through death or critical illness.

When a shareholder dies his or her shares will normally pass on to their husband or wife. Which in the case of many companies, would not be ideal. The consequences of this can be catastrophic for the company. For example the new shareholder may want to sit on the board and make detrimental decisions, or they may sell their shares to someone else not seen as a benefit to the other directors. In the case of small partnership companies, loss of a 50% shareholder may mean a huge loss in profits and potentially end the company. With shareholder protection insurance the company takes out a life only or life & critical illness policy for each shareholder to the amount of their shareholding. In the event of a claim the money is paid directly to the company in order to finance the purchase of the shares from the deceased next of kin. In order for this to happen smoothly it is advisable to have a shareholder agreement in place which forces the next of kin to sell the shares back to the company. This is sometimes called a cross share agreement.

At MyKeyManInsurance.co.uk we also offer key man insurance along with relevant life policy. Feel free to also ask us for more information on term life insurance, critical illness insurance. mortgage protection or call to get life insurance quotes. Our qualified advisors are able to assist in all types of life insurance as well as business protection.