Shareholder/ Partner Protection

The shareholders/of a Limited company and members of partnerships often need protection against the impact their death might have on the financial viability of a business.

In general, if one of the principles were to die, the others will have the right to buy them out—usually at a pre-determined price or on an agreed basis.

Shareholders/directors or partners can arrange life assurance based on the amount that would have to be raised in order to ‘buy-out’ the deceased participant’s share in the business.

Life assurance policies can either be written on a cross-life basis where each principal takes out a policy on each of the others or by each principal on his or her own life under trust—for the benefit of others.

It is most common to use level term assurance for this purpose—possible with a conversion or extension option. However, there is some merit in considering increasing term assurance, since the value of the business is likely to rise with time and a degree of inflation proofing at outset could save time and effort later on.

It is also worth considering that key man insurance can protect the business and financial interests of the shareholders. These key employees may include but are not restricted to the shareholders/directors.

Other forms of shareholder protection might include covering directors’ loan accounts with life assurance so that on the death of a director, money is available to cover the company’s liability.

The future value of investments is not guaranteed but may fluctuate. No decisions should be made relating to shareholder protection without seeking professional financial advice. 

In general, if one of the principles were to die, the others will have the right to buy them out—usually at a pre-determined price or on an agreed basis.

No decision should be made in relation to shareholder/ partnership protection wihtout seeking financial advice. Not all tax plannng solutions are regulated by the Financial Conduct Authority.