The death of a shareholder can be a difficult time for a business. Their shares in the company will be transferred to their beneficiaries and the business might continue operating as usual. However, the shareholder’s heirs may choose to sell their shares in an open market. Therefore, as a business owner, you want to be sure that your investment is protected. One way to do this is to take out shareholder protection cover. This article provides some tips on how to arrange shareholder protection cover.
What is shareholder protection cover?
Shareholder protection cover is a type of business protection insurance that business owners can purchase to protect themselves from co-shareholders who may die or become critically ill. This coverage allows the business owner to buy back the shares from the co-shareholder’s dependents, ensuring they retain complete control of the company. This can be a great way to ensure that your company stays in the family or that you maintain control over your shares. This type of cover can be vital for small businesses, where the loss of a key shareholder could have a devastating effect on the business.
How to arrange shareholder protection cover
You might be wondering how to arrange shareholder protection cover. The shareholder protection cover must be aligned to the Articles of Association and the shareholders’ agreement to be effective. The Articles of Association is a document that outlines the rules and regulations for a company or organisation. This document can help prevent misunderstandings and conflict within the company.
The shareholders’ agreement is a contract between the shareholders of a company that outlines their rights and responsibilities. The agreement may include provisions for how the company will be governed, how disputes will be resolved, and what will happen if a shareholder wants to sell their shares.
If shareholders want the agreement to be binding, they may need to put a trust or buyback deed in place. This will ensure that the shareholders can trust each other and that the agreement is enforceable.
What are the benefits of shareholder protection insurance?
Business protection: The death of a key shareholder can significantly impact a company, so this type of insurance can give peace of mind to shareholders knowing that their investment is protected.
Business continuity: This type of cover can ensure that the business can continue to operate even if a key shareholder can no longer be involved. This can be especially important for small businesses where one or two shareholders may be essential to the running of the business.
Shares remain in the family: If you’re worried about your company being taken over by outside investors, shareholder protection cover can help keep it in the family. Shareholder protection cover can give you peace of mind that your company will stay in the hands of those who care about it the most.
No need for buy-out capital: Having a shareholder protection policy in place can help to avoid the need for expensive buy-out capital, as it will pay out a lump sum to the shareholder if they need to sell their shares.
How much shareholder protection cover do you need?
It depends on various factors, such as the size of your business and the health of the insured person. You will need more protection if you have a large number of elderly shareholders with high-value shares. However, if you have a small number of shareholders with low-value shares, you will need less protection. You should speak to your accountant or financial advisor to determine the amount of protection you need.
What are the tax implications of shareholder protection premiums?
The premiums for a shareholder protection policy that are paid for by the company are counted as a Benefit in Kind and there will be a P11D implication to workout depending on the number of shareholders and the premiums paid for each.
Talk to a business protection expert
As a business owner, protecting yourself and your company from financial hardships is important. Talk to a business protection expert about the different types of insurance available to help you safeguard your business. Company life insurance, relevant life insurance, and income protection insurance are all essential coverage options to consider. By talking to a specialist, you can ensure that you have the right coverage to protect your business in the event of an unexpected circumstance.
Don’t wait until it’s too late – get in touch with our expert today and get peace of mind about your business’s future.