Shareholder Protection

Shareholder protection allows business owners to buy shares back from any partner who is diagnosed with a critical or terminal illness, or dies. This policy helps surviving owners stay in control and minimises disruption to the business.

How does it work?

The sum insured is usually based on the amount of capital the remaining partners would need to buy out their outgoing colleague’s equity in the company.

Shareholder protection policies pay out a lump sum upon the death of the insured person, if they’re diagnosed with a terminal illness and given 12 months to live, or contract a critical illness or injury (that’s covered by the policy) and are forced to leave work as a result

How does it work?

The sum insured is usually based on the amount of capital the remaining partners would need to buy out their outgoing colleague’s equity in the company.

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Shareholder protection policies pay out a lump sum upon the death of the insured person, if they’re diagnosed with a terminal illness and given 12 months to live, or contract a critical illness or injury (that’s covered by the policy) and are forced to leave work as a result

What are the benefits ?

The main reason to take out shareholder protection insurance is because it can help your business out during a difficult time. The loss of a fellow shareholder through death or illness can throw a company into uncertainty, especially if it was to happen unexpectedly.

Here are some of the main reasons you should take out a policy…

  • If a shareholder dies without a policy in place their stake in the business could be inherited by an unwelcome beneficiary or end up being sold to a rival

  • Businesses don’t need to save up capital or dip into their savings for funds to purchase an outgoing shareholder’s stake in the firm

  • Having a policy in place can help ensure a smooth transition when shares are changing hands. This can help keep business disruption to a minimum

  • The insured person’s beneficiaries have clarity over the amount they will receive for the company shares when they are bought out by the other shareholders

  • For small businesses, shareholder protection can be vital since many smaller firms might struggle to raise buy-out capital at short notice

What is a cross option agreement?

A cross options agreement is an arrangement between the remaining shareholders and the insured person’s estate. It sets out who will buy the shares and at what price if the insured party was to pass away or leave the company due to serious illness.

Also known as a double option agreement, these agreements allow the surviving shareholders to decide who will buy what percentage of the equity and gives the insured’s beneficiaries the peace of mind that comes with knowing exactly how much it will sell for.

We will help guide you and your business through the process so that you and your business will be sufficiently covered.

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