Mortgage and Insurance Advisers


Shareholders Protection

What Is Shareholders Protection?

Shareholders Protection Insurance is a type of business protection insurance that provides shareholders with the necessary funds to buy shares from each other if one of them was to die or was unable to work due to a serious illness or accident.

For Example, Bill and Ted own a local guitar business called “Excellent Adventures” They own the company with equal shares in an LTD company and they think very similar and get along great at work and personally. Although they are becoming quite popular, they don’t want to expand the business because they feel as if the quality of their offering would go down as well as they want to avoid any fame. Unfortunately one night, Bill suddenly passed away. After the funeral passed Ted planned on carrying out the dream that they had planned together. One thing they had not planned was that Bill’s wife was entitled to Bill’s shares within the company. She had always told Bill that he and Ted lacked ambition and that the company could go mainstream and be much bigger than they were. As an equal shareholder, not only did Bill’s wife have an equal say within the business as Ted, she was also entitled to her share of the profits as well. Ted begged her to sign papers that would entitle him to own the company outright and even offered her £100,000. Bill’s wife declined the offer and wanted £500,000 to sell her share as this was her only source of income.

How Can This Be Avoided With Shareholders Protection Insurance?

Bill and Ted own a local guitar business called “Excellent Adventures” They own the company with equal shares in an LTD company and they agree to take out a cross option agreement and take out a shareholders protection insurance policy.  They agree that if either one of them were to pass away, that the remaining business partner would carry on the dream of remaining small and local.  They decided after reviewing their accounts and speaking with their accountant that their shares of the company were worth £100,000 each.  Unexpectedly, Bill passed away and the shareholder’s protection insurance plan was executed.  Ted received £100,000 and called Bill’s wife to explain to her and her solicitor the situation and that they had shareholder’s protection insurance.  This meant that Ted was able to buy the shares from Bill’s wife and give her the £100,000.  Ted then became the sole owner of “Excellent Adventures” to carry on the dream they both had, while Bill’s wife received her entitlement of Bill’s share of the business.