Losing a major shareholder or partner can cause serious problems. A shareholder’s family could end up with a share of the business, and in the case of a partnership, the partnership will be automatically dissolved unless an agreement exists to the contrary.
In these circumstances, it may be in the best interest of the business for the remaining business owner(s) to buy the share in the business. However, most companies don’t plan for such an eventuality.
Share purchase protection covers one nominated individual, who can be a partner or a shareholder. It is a pre-arranged scheme to keep your business going if a crucial staff member is lost. It offers financial protection for your business if a shareholder or partner dies or is diagnosed with a critical illness.
The benefit should relate to the value of the business interest held by the person insured, which should be based on a professional valuation. So, regular revaluations should be carried out and the level of cover changed accordingly.
Shareholder protection policies are often set up in trust where each partner would request the protection policy be set up on their life under trust for the benefit of the other partners.
In such a case the other partners are likely to be appointed as trustees. In the event of a claim, the other partners as the beneficiaries of the trust would then have available the money to buy the seriously ill or deceased partner’s share of the company.