Shareholder Protection Insurance
This allows the remaining shareholders to retain control of the company whilst enabling the family of the deceased shareholding to liquidate their shares for much-needed cash.
Without suitable Shareholder Protection Insurance and appropriate agreements in place, the shares held by the deceased could pass to their next of kin and potentially someone with no interest in the company or its success. This can cause severe embarrassment and discomfort, especially when the remaining shareholders and the deceased’s next of kin have very different ideas regarding the ‘realistic’ value of those shares.
By taking out suitable Shareholder Protection with a suitable Cross-Option Agreement, the remaining partners always have the option and the capital to ‘buy back’ the company shares should the worst happen. The Cross-Option Agreement also provides the family of the deceased shareholder with the option to sell the shares to the business at a fair price (the method of valuation agreed ahead of time).
In this scenario, the family get much-needed cash as opposed to shares and the remaining shareholders retain control of the company limiting any risk of exposure to loss of control of the business, a sleeping partner or worse – a hostile, competitive or unwelcome shareholder.
Frequently asked questions
What is Shareholder Protection Insurance?
Shareholder Protection Insurance is a business protection policy that allows shareholders of a limited company with two or more shareholders access to the necessary funds to purchase the shares from each other if one party is to pass away or become critically ill, and therefore cannot continue working in the business.
Once shareholders apply and are accepted for Shareholder Protection Insurance, if one shareholder does become critically ill or passes away, the other shareholders will be offered a cash lump sum. This will allow them to retain control of the company by acquiring the shares from the incapictated shareholder or their family (if deceased).
Who is eligible for Shareholder Protection Insurance?
Shareholder Protection Insurance is suitable for limited companies with two or more shareholders.