Shareholder Protection for Business Owners
What Is Shareholder Protection?
Shareholder protection helps surviving shareholders retain control of the business if a co-owner dies or becomes critically ill, while helping the affected shareholder's family receive fair value for their shares.
This is typically arranged through a combination of life and critical illness policies alongside a suitable legal agreement. Getting the structure and the advice right is essential.
Why Not Just Rely on a Will or Verbal Agreement?
A will alone doesn't guarantee that surviving shareholders will have the funds available to buy back shares, and a verbal agreement isn't legally binding. Without proper planning, remaining shareholders could end up in business with the deceased's family, or the family could be left with shares they can't easily sell.
Cross-Option Agreements and Legal Documentation
A cross-option agreement gives surviving shareholders the option to buy shares and the deceased's family the option to sell them, without forcing a sale on either side. Reviewing your shareholder agreement and company articles alongside your protection is an important part of getting this right, and legal and tax advice may be needed.
How Much Cover Is Needed?
The amount of cover is usually based on the value of each shareholder's shares in the business. This may be calculated using a valuation method agreed between shareholders or an independent business valuation, and should be reviewed regularly as the business grows.
Shareholder Protection FAQs
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