Many business owners are so focused on the day-to-day operations and future growth of their company that they overlook what would happen if a shareholder dies or becomes seriously ill.

Without the right protection in place, your business could face major disruption, legal complications or even loss of control.

What happens if a shareholder dies?

When a shareholder passes away, their shares typically pass to their beneficiaries, often a spouse or children.

Unless a specific agreement is in place, these new shareholders may not wish to be involved in the business at all. Or worse, they may want to make decisions without understanding the company or its culture.

We’ve seen plenty of cases where surviving shareholders struggled to buy back shares due to a lack of funds and ultimately had to work with new part-owners who held up decision-making.

That’s why we always recommend Shareholder Protection to clients with multiple business owners.

What is Shareholder Protection?

Shareholder Protection is an insurance policy designed to pay out if a shareholder dies (or, in some cases, becomes critically ill).

The payout allows the remaining shareholders to buy their colleague’s shares from their estate.

It’s usually backed by a formal agreement that sets out the process and valuation method, removing uncertainty and delays.

What are the benefits of Shareholder Protection?

Having this cover in place:

• Keeps control of the business with the remaining shareholders.
• Provides the deceased’s family with a fair cash settlement.
• Avoids external parties becoming involved in day-to-day operations
• Reduces the chances of disputes over ownership.
• Prevents shares passing to unintended or inactive parties who don’t understand the business.
• Gives confidence to clients, suppliers and employees during a difficult time.

Without this protection, your business is left exposed to various risks that could have been easily avoided.

Other factors to consider with Shareholder Protection

Even businesses with agreements in place can fall into traps if they’re not vigilant.

Some companies have outdated shareholder agreements, lapsed or insufficient insurance cover, or they might have valuations that haven’t been reviewed for years.

These oversights can lead to delays or disputes at the worst possible moment.

What should you do next?

It’s worth taking time to review your current arrangements. Ask yourself:

• Do we already have shareholder protection?
• Are my shareholder agreements still relevant?
• Has my business changed significantly since the policies were last reviewed?
• Are all our owners covered, and is the level of cover still sufficient?

At TWP, we help clients assess their shareholder protection as part of a wider business continuity plan.

We work alongside your legal and financial advisers to ensure your cover, agreements and business structure are aligned to protect your interests.

Need help reviewing your shareholder arrangements? Get in touch with our team today.