Partner & Shareholder Protection
It is a legal requirement for a business to insure every car or lorry they own and most businesses have insurance in place for their factories, office buildings and its contents. Why then do many businesses overlook protecting the owners? Without protecting the owners of a business, in the event of their death or critical illness diagnosis, the business could collapse.
It is fundamental that all businesses have a plan in place to combat the financial consequences of its owner suffering a critical illness or death. Succession planning is crucial to ensure that shares are distributed correctly between the shareholders, their partners, their families and their employee’s in the event of death or diagnosis of a critical illness.
Shareholder protection is a crucial part of business protection. There are three options to transfer shares at the point of death:
Automatic accrual: Upon death of the shareholder will be distributed automatically to the remaining shareholders. The percentage split can be specified. A Life policy will also be set up to ensure that the family of the deceased are compensated.
Double Option agreement: An agreement is put in place to enable the company or to have the option to buy shares from the family within a time frame. For example, the agreement could state that the company has the right to buy shares within 30 days from the death. A decision must be made within the timeframe. An agreement could also state that the company has to buy the shares from the family or a percentage mix of both options.
Buy Back Option: This requires the company to buy the shares from the family and the family must sell them. A life policy for the family should be set up alongside this agreement to ensure that they are still compensated.
In the same way a will distributes assets in accordance with the deceased’s wishes, a business needs a plan in place. Speak to us about shareholder protection.