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What is Shareholder Protection?

Shareholder Protection is a type of insurance policy which secures the organization itself and its shareholders against the passing or major illness of a proprietor or shareholder.

If a shareholder or company owner should fall ill with a terminal or critical illness, or should pass on, Shareholder Protection could protect the other shareholders by issuing a lump sum to them. This payment could be used to protect the other shareholders and allow them to acquire the shares left and to ensure that the smooth running of the business continues.

Why does my business need Shareholder Protection?

Without some form of protection in place the shares or business could pass on to outside persons who have not previously been involved in the running of the company, such as family members. This could in turn affect the stability of the organisation and leave the remaining shareholders with a minority control over their own company.

In addition to providing complete protection for the remaining shareholders or business owners Shareholder Protection can also ensure that the family members of the deceased or critically ill shareholder can be provided for financially. The lump sum from the policy should be able to cover the cost of purchasing the shares from said family members ensuring they are able to gain access to the funds with no immediate problems.

Shareholder Protection Policies are available to all shareholders within an organisation so each individual can ensure their investment is secured in any event.

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Frequently asked questions - Shareholder Protection

Please drop us a message if you have any queries. Here are the most commonly asked questions about Shareholder Protection

What is Shareholder Protection?

Shareholder protection is classified as an insurance policy that is used to cover business owners or shareholders in the event of a major illness or death of a fellow owner/shareholder. It is used as a means to protect the company or organisation by paying out enough to cover the cost of purchasing an individuals' shares should the need arise. Each shareholder should ensure they take out their own policy which will cover them should the worst occur.

Who can Purchase Shareholder Protection Policies?

This insurance can be bought by the shareholder of a business/company/organisation and it covers their own life against critical illness or death.

What is the difference with Shareholder Protection and Key Man Insurance?

Key Man Insurance policies exist to cover any individual within a company who is considered essential to the running or functioning of the business. This person does not need to be a shareholder to be covered by Key Man Insurance. Shareholder Protection however is only available to someone who owns shares of a company or are a business partner. The person must own a percentage of the business or company to be covered by this type of policy.

Is Shareholder Protection the same as Partnership Protection?

The key difference between Shareholder Protection and Partnership Protection is the ownership of company or organisation shares. In a partnership there are no shares to issue, buy or sell so the protection policy is used instead to ensure that the full interest of the partnership is given to the remaining party.

Shareholder Agreements

Shareholder Protection alone does not guarantee that shares are immediately payable to the shareholders remaining. To ensure that the policy is issued to the shareholders you may have to put an agreement in place with the other parties involved. To do this the shareholders should establish a cross option agreement which states that should one shareholder fall ill or pass away their shares are made available for the remaining shareholders to acquire at the current market value. This arrangement or agreement should be made through a legal entity, such as a solicitor or legal team. All relevant parties should agree to obtaining Shareholder Protection and consent to the agreement that the policy will be used as above.

Cross Option Agreements

As stated above a Cross Option Agreement is an arrangement that exists to ensure that all shareholders agree to cover each other in the event of their passing or critical illness. Shareholders are not required to obtain Shareholder Protection, however it should be considered as a valuable and legal product.