The case for Shareholder/ Partnership protection?

If one of the business owners were to die or become either terminally or critically ill, Shareholder/partnership protection insurance could give the remaining business owners enough money to buy the individual insured partner’s or the shareholder’s interest in the business. 

Shareholder/partnership protection gives business owners the financial reassurance they need to keep the business on track during an unsettling period for the owners.

• Megan Maupin is one of three shareholding directors of the Held Research Company 
• The company is worth £1.2 million and each director owns a third of the shares in the business
• Megan was only 50 years of age when she suffered a severe stroke, but made a full recovery within six months.

With Shareholder/ Partnership protection in place

• All three shareholding directors were advised by their financial adviser to protect their shareholdings and each had arranged for life and critical illness cover to be written in trust for the benefit of the other shareholders
• Each of the shareholders entered into an option agreement which gave them the option of purchasing shares should the others die or suffer a critical illness
• The business’s Articles of Association were updated by the company solicitor
• When Megan suffered the severe stroke, a critical illness claim was submitted to her insurer, who paid the claim shortly after receiving a medical report from her neurosurgeon
• Proceeds of the claim were payable to the business trust and held by the trustees for the other two shareholding directors
• After making a full recovery, Megan decided she would like to sell her shareholding in the business but agreed to be employed by the firm on a part-time consultancy basis
• The two remaining shareholders purchased Megan’s share of the business with the £400,000 from the business trust and each became 50% shareholders of the business.

Without Shareholder/Partnership protection in place

• With no shareholder/partnership protection arrangement in place, Megan was unable to sell her shares to the other shareholders
• Instead, she was forced to retain them and continue to deal with the pressures of business ownership
• Alternatively, she could have chosen to sell her shares to the highest bidder, which may not have been with the approval of the other two shareholders.

If you own or run a business it is usually your most important assets - it is never too late to safeguard it!