Business protection
Director share purchase (shareholder protection)
If a fellow director or shareholder died tomorrow, who would own their shares? Shareholder protection, sometimes called director share purchase, makes sure the remaining owners have the money to buy the shares and the family receives a fair price.
Why it matters
Without a plan, shares usually pass under the deceased director's will. Their family may not want to be involved in the business but may need the value. You may not want a new shareholder at the board table. Shareholder protection solves both problems.
How it is set up
- Life (and often critical illness) cover on each shareholder, usually sized to the value of their shares
- Policies written in a business trust for the other shareholders (personal arrangement), or owned by the company for a share buy-back (company share purchase)
- A cross option agreement, so either side can require the sale and purchase to go ahead
- Regular reviews as the company value changes
Valuing the shares
Cover should reflect a realistic value of each holding. We work with your accountant to agree a valuation basis and review it as the business grows, so no one is under or over insured.
Important information
Cover is subject to underwriting and the terms of the policy. Tax treatment depends on the individual circumstances of the business and the insured person, and may change in the future.
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Q&A
Questions & answers
What happens to a director's shares when they die?
Unless there is an agreement in place, the shares pass under their will or the intestacy rules. Their family may become shareholders, whether or not they want to be involved.
What is a cross option agreement?
An agreement between shareholders that gives the surviving owners the option to buy the shares, and the deceased's estate the option to sell them. It works alongside shareholder protection insurance.
How much shareholder protection cover is needed?
Usually the value of each shareholder's stake in the company. The valuation should be reviewed regularly so cover keeps pace with the business.
Can the company buy back the shares instead?
Yes. With company share purchase, the company owns the policies and uses the payout to buy back the shares, subject to company law and the articles of association.
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