Shareholder protection is about considering what might happen to a business in the event of a shareholder dying or becoming seriously ill. If one of these events was to befall a shareholder (particularly in smaller private limited companies with few shareholders) then the financial security of the business could be at risk, the stability of the business could be at risk, and the continuity of the business could be at risk. By providing a safety net by taking out one of these schemes, you will:

• Have the option to give the shareholders family a lump sum of money rather than the shares belonging to the deceased shareholder, as the family might not have any interest in the business.
• Keep the option open for the remaining shareholders (or the company) to retain control by buying the deceased shareholders shares (but without the policy would not have had the financial resources to do so).
• Stops the shares going to someone who does not share the same vision as the other shareholders regarding the direction of the company, or worse falling into the hands of a competitor.

So how does a Shareholder Protection plan work and what does it aim to provide?

When a shareholder dies or becomes seriously ill, the plan will provide sufficient funds to ensure the company can continue to operate without a reduction in capacity while the ongoing shareholder, (or the deceased shareholder’s family), receive a fair amount of compensation. The policy documents that come with one of these plans allow the surviving shareholders to receive these funds free of tax free.

Is this the same as business continuity planning?

It falls into the same category, yes. The plan will set out the policies and procedures to ensure that the company retains control and (most importantly), has the funds available to do so. The benefits to the remaining shareholders include:

• Fair Commercial PriceB - A fair price is agreed to arrange the most appropriate transfer of shares to them, or the company.
• Insurance Policies - these are set up to ensure that appropriate funds are available to purchase the shares.
• Retain Funds - By having these funds available it means the company does not have to find funding that may have been set aside for other purposes.
• Competitor protection - being able to keep control of the shares means that you can prevent the sale of the shares to a hostile party or a competitor.
• Tax Efficiency - The plan includes all the documentation needed to enable all the transactions to be made in a tax efficient manner.
• Financial Security - Having this plan in place means that the dependents of the critically ill / recently deceased shareholder are financially secure.
• Confidence - As the business is able to continue as before, this helps to maintain the confidence of your employees and customers, who might have gone elsewhere if your production or service had nosedived due to the death / critical illness of a key shareholder.

How much does it cost and how can I receive advice?

By completing the enquiry form below, one of our advisers will contact you to discuss your requirements. Alternatively you can contact us on 01274 516900.;