Shareholder Protection is a policy or policies set up to protect each shareholder in the event of another shareholder’s death or critical illness.
If a shareholder dies or has a critical illness, their next of kin would normally become the new owner of the shares and will therefore become the new director, which can cause all kinds of problems.
The next of kin could become a decision maker within the company having a say in running of a business they have no knowledge of.
The shares inherited may also be sold to a third party at a value that could change the value of all other company shares, putting the remaining directors at financial risk, also the new director may not be someone welcome on the board.
Shareholder protection insurance can solve all these problems. It would enable a company to buy the shares of a deceased without impacting their cash flow in anyway. (Requires a shareholder agreement).
In the event of a key person dying, a shareholder protection policy can fill the gap in the companies lost profits, meaning the company maintain their value prior to the key person dying and would enable them to recruit a new key person to keep the company going in the long term.
Without shareholder protection, all directors are at risk and have a hidden burden that could have serious impact if they do not take out the relevant policy before it is too late.
For advice on shareholder protection, call us now.