Shareholder protection insurance is designed to protect each of the shareholders of a business. On the death or diagnosis of a critical illness of a shareholder, the other shareholders receive a cash lump sum which they can then use to buy the affected shareholder’s share.
This method ensures that the affected shareholder’s family receive their part of the inheritance as quickly as possible whilst there is minimum disruption to the company.
A company’s Articles of Association deal with the issues of transferring and selling shares. In most cases the deceased or critically ill shareholder’s share passes to their family. From the company’s perspective this means that not only do they have a new shareholder, but they also have to pay that shareholder a percentage of company profits each year. This can of course be problematic if the new shareholder adds little or nothing to the running or profitability of the company. Additionally, it could also mean that the new shareholder would look to sell their share to a third party whom the company might not want to be in business with.
The likelihood is that the surviving shareholders will want to retain control of the company. Shareholder Protection Insurance allows the company to do this. Many companies adopt a pre-emption clause in their Articles of Association which allow the shareholders the right to buy the shares of the deceased or critically ill shareholder. Companies without Shareholder Protection Insurance often try to borrow the money from banks to do this. However, not only can this create a large debt for the company but the banks can be reluctant to lend if they feel that the deceased or critically ill shareholder was key to the running of the business.
Clearly, Shareholder Protection Insurance is important to the company and to the shareholders estates.
DGS cover nationally and have offices in London, Hertfordshire and the Midlands. We have a dedicated team of Independent Financial Advisers (IFA) and Chartered Financial Planners who can ensure you are receiving the right financial advice and the highest standard of service.
We also hold ‘Chartered Financial Planner’ status. To find out more about what that means for you, click here.
For a free consultation to discuss your Shareholder Protection requirements together with any other financial needsContact Us today
"DGS have been incredibly supportive with regards to our businesses auto enrolmentrequirements and have been involved during the planning and execution stage. They provide a knowledgeable and personable service and work well with our HR team. I urge anyone with auto-enrolment challenges to meet with DGS to ensure compliance and understanding."
Nina Marshall, Head of Human Resources, The Orchid Group, HertfordshireSee what more of our clients say