Shareholder Protection Insurance

If your business is owned by more than one owner, then it’s vital you consider this type of insurance to safeguard your company against the death or critical illness of one of the business owners. Without this type of cover the usual course of action is for an individual’s share of a business to pass to their relatives or other beneficiaries on death. When this happens, the beneficiaries have two options; either take over the deceased’s position as an owner, or realise the value of the interest by selling it. Unfortunately, neither option is without its problems.

Often, the shareholder’s family members or other beneficiaries have little or no prior association with your business; they may know little about what you do and nothing of how you work.

Should the beneficiaries wish to sell the interest to release the capital, you, as the remaining owners, may have very little influence over how the shares are sold. Even if your business is consulted, there may be difficulties in finding an appropriate buyer, which could lead to financial problems for both the family and your business, or you could find yourself working with an unwelcome new owner.

Shareholder protection can provide cover should one of the business owners become critically ill or die, the capital is instantly provided in a lump sum payment. This will enable the remaining business owners to purchase the share of the business from the critically ill owner or from their beneficiaries, allowing you to maintain full control and ownership of the business.

When a company shareholder passes away, their shares are typically passed on to their estate, i.e. their next of kin or other beneficiaries. These family members or beneficiaries then have a choice as to what they will do with their inherited interest/share in the company and may either:

• Take the deceased shareholder’s role in the business on or
• Sell the shares to realise their financial value

Either way, their decision could present the company with potentially serious problems if there is no protection in place. Shareholders’ families frequently have very little to do with a company and as such often have little to no knowledge of what a business does or how it operates. If they decide to take on a deceased business owner’s role within a company, their lack of knowledge or lack of commercial experience in general – could result in their involvement with the business’ daily affairs leaving surviving shareholders or surviving business owners facing substantial difficulties and frustrations.

In the long run, this could have a significant detrimental effect on the company’s smooth running and profits. If, on the other hand, the beneficiaries/family decide to sell the shares, the company’s remaining shareholders may have no say with regards to whom they are sold to. Even if the beneficiaries consult them about this, finding a suitable buyer can be difficult. This could leave both the deceased’s family and the company with financial difficulties.

The need to sell these shares quickly could then result in them being sold to undesirable new owners like, for instance, hostile competitors. In the worst case scenario, this could result in the business being dissolved and employees being made redundant.

This type of insurance plan can prevent this from happening. Contact us now to find out how.

To be eligible you must be a shareholder of the company. Usually, this means they must be registered shareholders of the company.

Insurance premiums depend on the following factors:

• Age of the individual to be insured
• Smoker status
• Medical history & current lifestyle
• Level or amount of cover – this needs to be set at a suitable level based on value of the business and the % of shares in the business
• Term or length of the policy
• Which, if any, other add-ons/optional extras are selected

Premium rates also vary not only between policies but also between insurers, so it is important to obtain expert advice.

Spectrum Financial Advice will advise and assist you in obtaining the right type of policy, add-ons and cover level to protect your business against the loss of a shareholder – effectively and at the most affordable premiums possible. Contact us today to find out how.

Considering the potential impact a shareholder’s death could have on a business, every company with two or more shareholders/partners – regardless of industry or size and including Partnerships, Private Limited, Public Limited and Limited Liability Partnerships (LTDs, PLCs & LLPs) – should seriously consider shareholder/ownership protection.

Should you be securing your business’ future with shareholder protection? Request a free no-obligation review of your company’s specific requirements today.

The key features of the insurance include:

In the event of the death, critical or terminal illness of a shareholder, funds are available to the remaining business owners. This allows the remaining owners to purchase the shares back from the deceased owner’s next of kin.

The deceased owner’s next of kin will then have the value of the shares in the form of a lump sum payment and the remaining business owners are able to retain 100% control of the business.

There is no income tax to pay on the proceeds from this type of policy.

As the pay-out from the life policy does not form part of the deceased’s estate, there will be no inheritance tax (IHT) as the shares will typically qualify for 100% business property relief.

Tax rules may vary depending on your personal situation. We do not offer tax advice. We recommend you speak with your own legal or tax adviser on your personal tax situation.

The term of the Shareholder Protection policy needs to match the needs and circumstances of the business and the shareholders.

Usually, the length of the policy will tie in with the date the shareholder is planning to retire or exit the business.

Again, we will recommend a suitable term based on the needs of you and the business.

Insurance premiums are usually paid by the company/business. It is, however, possible for alternative arrangements to be made. Please contact us for further guidance on this.

Added to a shareholder protection (life) policy, but can be taken out independently, critical illness cover protects a company in the event of a shareholder being diagnosed with a specified illness.

Spectrum FA have years of experience as specialist business protection insurance advisors and have arranged cover for many different types of business. We will recommend suitable policies that will protect the future of your business from being disrupted by the unfortunate events such as death or critical illness.

Being independent and regulated by the Financial Conduct Authority, we have access to the leading insurance providers in the market, at competitive premiums. We provide professional advice and will tailor the cover to match the circumstances of you and your business.

We do not charge you a fee for our advice or service and you will speak directly to an expert who will guide you through the process and handle all the paperwork on your behalf.

To find out more about business insurance including the cross option agreement / double option agreement, please get in touch with us today and arrange a fee-free, no obligation review. You can contact us by completing the contact form on the website, by emailing info@spectrumfa.co.uk, and one of our advisors will get back to you as soon as possible or by phoning us on 01279 315 013.