Corporate Planning - Shareholder Protection

What is Shareholder Protection?

It is a form of insurance which protects the company and company shareholders against the critical illness or death of an owner or shareholder in the company.

In the event of a business owner or shareholder dying or being diagnosed with a terminal or specified critical illness, share protection can provide a lump sum to the remaining business owners. This means that in the event of a valid claim being made during the length of the policy, the lump sum could be used to help purchase the deceased partners/shareholding directors/members interest in the business.

Frequently Asked Questions

Who can take out a Shareholder Protection Policy?

The policy can be taken out by any majority shareholder in a company on their 'own life' with a sum equivalent to the value of their shares. The policy can then be written into trust for the benefit of their co-shareholders. The shareholders may then enter into an agreement that this sum is used to buy the shares from their loved ones.

How is Shareholder Protection different from Key Man Insurance?

A key man insurance policy can be taken out on any staff member who is considered 'key' to the businesses profitability and value. This person may not necessarily be a director, partner or shareholder. In contrast a Shareholder Protection Policy is put in place to protect those who own a percentage of the business, whether they are a majority shareholder or are a business partner.

Why protect the shares of a director?

When the business has multiple owners, putting Shareholder Protection in place, provides the business with the financial means to buy the shareholding back from the deceased shareholders estate. Should one of the owners die unexpectedly or become critically ill. Protecting the business from having to work with a third party who does not understand the business, potentially can’t contribute to the business, or may not want to be involved in the business. Ultimately, the business control remains with the remaining shareholders and the family gets financially compensated for the shareholding.