What is Shareholder Protection?
Shareholder Protection, also known as Ownership Protection, provides a cash sum to help business owner(s) buy the life assured’s interest in the business if they pass away, are diagnosed with a terminal illness or optionally, have a specified critical illness.
If a shareholder dies with no shareholder protection in place, their shares in the business are passed to their beneficiaries, usually their family. The family could then ask for payment of the shares, a working involvement within the company or sell their shares to a third party. All of these may cause disruption and possible financial loss to the company. A Shareholder Protection Policy along with an appropriate ‘Cross Option Agreement’ ensures that these problems will not occur.
A Shareholder Protection Policy ensures that:
- Remaining owners retain total control of the business.
- It is possible to include Critical Illness cover so that if the life assured suffers a stroke for example, then the life assured can force the remaining shareholders to buy their shares if desired.
“58% of businesses had no formal agreement to establish what would happen in the event of the death or critical illness of a business owner.” [stated in Legal & General Trading on Thin Ice 2011]