Why Is Shareholder Protection Insurance Important?
Research from Legal & General shows…
- Half of businesses have no shareholder agreement on what would happen if a business owner dies or suffers a critical illness.
- 43% of limited companies have not reviewed their articles of association in the last year.
- 37% of businesses said the surviving shareholders would want to purchase the shares of an absent shareholder to keep control of the company. However, most have no clear way to fund this.
What Happens Without Shareholder Protection Insurance?
If you or one of your business partners dies without deciding what will happen to your share in the business, it will likely pass to your estate. If so, a family has two alternatives. They can take over the deceased’s position as a partner or sell the share.
As you can imagine, neither of these avenues is problem-free. Consequences include:
Losing control of the business
If family members take over the deceased’s position as shareholder, there’s no guarantee they can make a contribution to the business. Their presence could even be bad for the company if they don’t have the skills to run a business.
Gaining a sleeping partner
Similarly, the family member could become a sleeping partner who doesn’t help run the company but is entitled to a share of the profits. Also, the family member may be unhappy if they have no control over the direction of a business they rely on for income.
Selling to an unwelcome party
The family members could sell their interest, leaving the remaining partners working as minority shareholders with an unwelcome new partner. Or if there are no natural buyers, both the family and the company could face financial problems.
CLIENT SUCCESS STORY 🥳
David and Graham own Interface NRM and chose Shareholder Protection as a safety net to ensure their families, the business and their staff would be ok should something happen to them. Full story →
What About Keyman Insurance and Relevant Life Cover?
There are other forms of business insurance which might be more appropriate if there is little intrinsic value in the business and no need for Shareholder Protection Insurance.
What Is Key Person Insurance?
Keyman insurance pays out a lump sum to the business should a key individual suffer a critical illness or die. The individual does not need to be a shareholder and the funds are used to maintain business continuity.
It is usually more appropriate for start-ups or companies where there is limited shareholder value. Read why start-up Bikmo chose Keyman Insurance here →
What Is Relevant Life Cover?
Relevant Life Insurance is popular with company directors paying out a tax free cash lump sum to their loved ones should they die.
There are savings to be had of up to 50% on personal life insurance premiums.