Shareholder protection schemes
Amid the time-consuming, complex business of running a company, scant attention is paid to what might happen if a shareholder dies, or becomes seriously ill.
Without share protection, the loss of a stakeholder can have a huge impact on a business. It could mean shareholders could end up being in business with people who may have little or no interest in the business, or the skills needed to make the business a success. In the case of a partnership, the partnership will be automatically dissolved unless an agreement exists to the contrary.
In the interests of financial security, business stability, and continuity – particularly for private limited companies where there may only be a small number of principal shareholders, it is essential to provide a safety net following the loss of a shareholder: •
- Shares may go to the deceased’s family, which has no interest in the business and would prefer a cash sum
- The company or other shareholders will want to retain control by buying lost shares – but may not have the resources to do so
- The shares may be taken over by someone who does not share the company’s objectives – and may even be a competitor
What is the solution?
If something happens to a shareholder what happens to their shares? Shareholder Protection is extremely important as it provides a lump sum in the event of death (or critical illness) to ensure that the company can buy the shares of the relevant business co-owner. Not having Shareholder Protection could potentially be devastating for the structure business if such an occurrence should ever happen.
How do Financial Resolutions help?
We are a team of specialist consultants who are authorised to provide regulated advice and will show you the best options for your company taking into account your circumstances. Financial Resolutions are impartial and search the market extensively to ensure you find the best value cover for your needs.
- Trusted, impartial advice
- Search of the market so you have a complete choice
- No obligation service
A Cross-option agreement is generally recommended because it stipulates that the company has the option to purchase the relevant shares left by the deceased because without it there is no obligation from the deceased’s estate to give up these shares. Alternatively the cross-option agreement also protects the family of the deceased by ensuring that they can offload the shares for a fair price.