Shareholder Protection
Protect your business from the threat of a new shareholder
It takes a vast amount of work to make a business successful, yet the sudden loss of a shareholder could instantly unravel that success. Shareholder protection can provide for that eventuality and neutralise the impact if the unthinkable happens.
Shareholder protection
If your business has multiple shareholders, taking out shareholder protection is prudent. If one of your shareholders died, their shares would pass to their family or other beneficiary, and you’d have a new, potentially unwelcome, shareholder. To retain control, you and your remaining shareholders would need to buy back the deceased owner’s shares. Yet, what if you cannot afford to do so?
Shareholder protection avoids this scenario. It pays out a lump sum when a shareholder dies or is diagnosed with a terminal illness, which you can use to buy back the shares from the new owner.
As there are different ways to set up this type of cover, it’s best to seek advice from a business protection adviser. We’ll take a detailed brief to understand your business and help you determine the appropriate structure for your protection. With whole-of-market access, we can source the right insurer for your specific requirements and ensure your policies are set up correctly. Once your policy is in place, you’ll have peace of mind that your business won’t fall into unwelcome hands.
Get in touch for an initial free, no-obligation chat with an adviser about securing shareholder protection insurance for your business.
Shareholder Protection FAQs
What is shareholder protection insurance?
Shareholder protection insurance pays a lump sum to a business if a shareholder dies or becomes critically ill. The payout is used to buy the affected shareholder’s shares, ensuring business continuity and fair compensation to the shareholder’s estate or family.
Why is shareholder protection important?
If one of your shareholders died, their shares would pass to their beneficiary. That beneficiary would then have a stake in your business, possibly a controlling share. You might not want them, and they could even sell their share. Shareholder protection provides a means for you to buy out the new shareholder.
How does shareholder protection insurance work?
If a shareholder covered under the policy dies or is diagnosed with a critical illness, the policy pays out a lump sum to the remaining shareholders. This money is typically used to buy back the shares from the affected shareholder’s estate/beneficiaries.
What are the benefits of shareholder protection?
Shareholder protection offers several benefits, including the following:
- You retain control of the business.
- It prevents the sale of shares to hostile parties or competitors.
- It maintains business stability and continuity.
- The beneficiaries receive a financial payout.
What is a cross-option agreement in shareholder protection insurance?
A cross-option agreement is a legal agreement between shareholders that works alongside the insurance policy. It gives the remaining shareholders the option (but not the obligation) to buy the shares from the deceased (or ill shareholder). It also ensures that the deceased shareholder’s estate can sell those shares. Either party can enforce the cross-option agreement to force the sale, guaranteeing neither is held to ransom.
