Blog written: 10/10/2024
In today’s blog we take a deeper look at Shareholder Protection. Shareholder Protection helps an owner retain control of their business if another owner dies or becomes critically ill.
Shareholder Protection is particularly important where the business owners are not married. This is because, for an unrelated business partner, their shares will pass to their beneficiaries on their death. Meaning the surviving owner will either need to work with the beneficiaries or buy them out.
Generally speaking, the beneficiaries of the shares will be the spouse or children of the deceased owner. These beneficiaries are unlikely to have any experience working in the business making the new partnership difficult.
Most businesses/owners do not have the available funds to be able to purchase the shares promptly. This leaves the surviving owner & business vulnerable.
To ensure the shares can be purchased quickly. Each shareholder can take out shareholder protection which is a type of pure protection insurance. Cover can be taken out for death only or cover can be added in the event of critical illness.
Shareholder Protection can be set up in a number of different ways such:
- The Company owns the plan and uses the funds to purchase the shares back on the death. Company purchase must be permitted by the Articles of Association.
- Own Life in Trust where each shareholder owns the cover themselves and they create a trust naming the other shareholder as the beneficiary.
- Life of another where an owner takes out a policy on the life of the other shareholder.
Each of the plan ownership options has different taxation considerations and your accountant and legal adviser should be part of the advice process. We can work closely with all parties to ensure the cover is set up in an appropriate way for your business.
So in summary, advice in key and if you do not own 100% of your businesses shares, you should consider Shareholder Protection.
For more information on this valuable protection plan and for advice on all areas of business protection, please contact us on 01455 63 61 63. https://onerooffinancial.co.uk/contact/
The information contained within this blog was correct at the time of publication (10/10/2024), and is subject to change.
