What is Shareholder Protection?

Shareholder Protection is insurance designed to help business owners retain control if a significant shareholder dies or becomes incapacitated.

Without it, a co-director’s shares may pass to their next of kin, potentially making you an equal partner with someone uninterested or incapable in helping run the business.

Ask yourself these questions to decide if Shareholder Protection is right for you...

Would you want your deceased co-director’s spouse or child as your business partner?
Can you afford to buy their share of the business while managing the disruption caused by losing a co-owner?
Would you prefer full control of the business rather than sharing ownership with the next of kin?

How is it Arranged?

This is dependent on several factors but the most common method is as follows:

Policy Arrangement: Each director takes out a life insurance policy for the value of their shareholding, held in trust for the surviving shareholders.

Option Agreement: This legal agreement gives surviving shareholders the right to buy the deceased’s shares and the next of kin the right to sell them. Either party can enforce the sale/purchase.

Taxation of Premiums and Proceeds

This is dependent on how the cover is arranged BUT the most common method is as follows:

The company typically pays the premiums, which are treated as a tax-deductible expense.
Directors pay an equalised* benefit-in-kind liability based on the premium cost.
*Premiums are equalised to account for differences in shareholder age, health, and ownership stakes, ensuring a fair arrangement.

Feel free to click here (Scottish Widows) or here (Royal London) to see how these calculations work in practice or click the button below to get in touch.

Back to 'Options'