Shareholder Protection

Shareholder Protection keeps your business stable during uncertain times, such as a shareholder's passing or critical illness. Our referral partners can help you plan ahead to prevent such disruptions from being devastating for your business.

What is Shareholder Protection?

How does it work?

  1. Agreement: Shareholders enter into a legally binding agreement, typically including a cross-option agreement. This enables the business or remaining shareholders to purchase the shares from the estate in the event of death or critical illness.
  2. Insurance Policy: Each shareholder holds an insurance policy. In case of death or critical illness, the policy facilitates the payout required to repurchase their shares.
  3. Purchase of Shares: The insurance proceeds are allocated towards the acquisition of shares at a predetermined price.

Understanding Shareholder Protection: Types and Benefits

Shareholder Protection Insurance comes in three main types, each serving different business needs.

Life of Another Policy: Each business owner holds an individual policy, with premiums based on typical factors like age, health, and lifestyle. In the event of a shareholder’s death, a payout from their policy allows the surviving shareholder to buy their shares. This structure is typically suitable for partnerships involving two or more owners.

Business Trust Policy: Each shareholder maintains an individual policy held within a business trust. Upon a shareholder’s death, the payout is distributed equally among all shareholders.

Company-Owned Policy: The company purchases and pays the premiums for the policy. The business receives the payout upon a shareholder’s death.

Shareholder Protection Insurance offers several key benefits for businesses.

  • Financial Security: Receive a lump sum to repurchase shares from the deceased shareholder’s estate.
  • Maintained Control: Retain ownership and control within the business or among remaining shareholders, avoiding third-party acquisition of shares.
  • Dispute Prevention: Minimize potential conflicts that could arise over ownership of shares.
  • Tax Efficiency: Incorporating shareholder protection into your business strategy can yield tax savings, as insurance premiums are eligible for deduction as a business expense.

Who Needs Shareholder Protection?

This solution is essential for any business with multiple shareholders, especially where shares are significant assets. For smaller businesses, shareholder protection is vital. The ability to swiftly raise funds to buy out the deceased shareholder’s shares may not always be feasible, potentially endangering the business’s continuity.

3 types of Share Holder Protection Insurance:

Life of Another Policy

Each business owner holds an individual policy, with premiums based on typical factors like age, health, and lifestyle. In the event of a shareholder’s death, a payout from their policy allows the surviving shareholder to buy their shares. This structure is typically suitable for partnerships involving two owners.

Business Trust Policy

Each shareholder maintains an individual policy held within a business trust. Upon a shareholder’s death, the payout is distributed equally among all shareholders.

Company-Owned Policy

The company purchases and pays the premiums for the policy. The business receives the payout upon a shareholder’s death.

Why Choose MME for Shareholder Protection?

At MME Mortgages, we specialise in offering tailored financial solutions for businesses. We understand the essential need to protect your business and shareholders. Our referral partners are here to guide you through setting up bespoke shareholder protection insurance that perfectly suits your business, ensuring peace of mind and continuity for the future. Get in touch with us today to schedule a detailed fact-finding session.

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