Shareholders can protect themselves
and guarantee business control
should the unexpected happen

Shareholder protection insurance enables business owners to buy shares from a co-shareholder if they pass away. At the same time, it can permit a shareholder to sell their shares to co-shareholders if they are diagnosed with a critical or terminal illness.

When a shareholder passes away, their shares in the businesses are typically passed to their estate beneficiaries. This can cause disruption to the running of the businesses, along with other potential issues.

Surviving shareholders may not be able to raise or borrow the funds needed to buy the shares from the beneficiaries. However, share protection insurance provides the right and the funds to buy the shares from beneficiaries at a fair and pre-determined cost.

Standard shareholder protection insurance allows shareholders to buy the shares from beneficiaries when a co-shareholder passes away. Simultaneously, shareholders may be forced to purchase shares from a co-shareholder who is diagnosed with a critical or terminal illness. Adding critical and terminal illness cover into the policy is an option.

Premiums are paid for a fixed term, which can be renewed. If one of the shareholders passes away, the remaining shareholders can make a claim to help them purchase their shares from beneficiaries. They have a right to buy and beneficiaries cannot prevent the sale for the pre-determined price. If one of the shareholders is diagnosed with a critical or terminal illness, they can make a claim to force the sale of their shares.

The policy must align with a shareholder agreement and there might be a need for a trust or buyback document to make them effective. There are multiple complexities that are best discussed with a financial adviser. 

The type of policy and what it covers should be seriously considered before choosing a policy. You will also need to reconsider the policy’s suitability at the time of renewal, which is usually every five or ten years. Many other considerations are made concerning the legal implementation of the policy. 

The benefits of using an adviser to choose shareholder protection insurance are:

• The adviser can bring your attention to the pros and cons of different types of policies, not limited to cross-option agreements and buy-sell agreements.
• The adviser can inform your decision on the level of coverage needed.
• The adviser will provide efficiency in assessing your needs to find the most suitable market options.
• The adviser will provide additional support concerning the legal and tax implications of a shareholder protection policy.

You can buy shareholder peace of mind. Book a consultation with a Taylor James financial adviser to discuss all your shareholder protection insurance options.