Shareholder Protection Insurance Do You Need It?
Posted on March 5th, 2011 in All Posts, Business Protection, Shareholder Protection Insurance. The loss of a partner or shareholding director can have a major impact on the success of a business in terms of ensuring continued control for the remaining owners.However we also need to think of the effect on the dependants of a deceased owner, or the position of a critically ill owner who might wish to leave the business. The potential problems that might arise can depend on the business type, the size of the business share, and the procedures laid down in the articles of association or the partnership agreement if there is one.
For example, if one of the owners of a limited company becomes critically ill or dies:
- They or their family might want to sell their share of the business. This could be to a competitor or some other unsuitable buyer. If the owner was a majority shareholder then control of the business has been lost.
- If the outgoing owner had at least 75% of the shares then they could also force the outright sale or winding up of the business.
- Perhaps the owner’s family may wish to become involved in the business, which may be at best disruptive or at worst unacceptable to the other owners. A majority shareholding allows the new owner to appoint themselves as a director and remove other directors, gaining day-to-day control of the business.
- The other owners may have to use funds they intended for other purposes to buy the share of the deceased or ill owner.
In either of these situations the need to find a large cash sum would come at a time when the business is also suffering the financial impact of losing a key partner. So it is important that if this happens, plans are in place for the remaining owners to be able to buy a critically ill or deceased colleague’s share of the business. The aim in setting shareholder protection insurance is to ensure:
- The remaining business owners retain continued control of their business
- The estate of the deceased owner, or the outgoing critically ill owner, gets fair value for selling their share of the business
- The arrangement is set up in a tax-efficient manner.
There are various ways to do this and which is the right one will depend on the individual business. If you would like to receive free advice and quotes of how to protect your business then enquire using the form or ring Damian on 0800 612 3367.
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Great post! I am actually getting ready to do more ezine marketing and coming across this information is very helpful my friend. Also great blog here with all of the valuable information you have. Keep up the good work you are doing here.
We have 2 shareholders and each and every owns 50 % of the small business. My company companion is a good deal older than me will I finish up having to pay added for his living insurance plan premiums?
Once the monthly premium has been underwritten for you both then I use a calculation that equalizes the monthly insurance premiums so that those directors who will benefit the most pay the most. This is standard practice in Shareholder protection. If you want me to give you quotes and real examples let me know by ringing me.