Shareholder Protection
Ensure surviving shareholders can buy out a deceased or critically ill shareholder.
Shareholder Protection insurance ensures that if a shareholder dies or suffers a critical illness, the surviving shareholders have the funds to purchase their share of the business — preventing it from passing to an unwanted third party and keeping control of the business with the remaining shareholders.
What is Shareholder Protection?
Shareholder Protection is a life insurance or critical illness policy taken out by each shareholder on their own life (or the lives of other shareholders), with the proceeds used to fund the purchase of shares from a deceased or critically ill shareholder's estate. It is typically arranged alongside a Cross Option Agreement — a legal document that gives both parties the option to buy and sell the shares.
Who is it suitable for?
Key Benefits
Tax Considerations
When structured correctly with a Cross Option Agreement, Shareholder Protection can be arranged so that Business Property Relief (BPR) applies to the deceased's shares. This can reduce or eliminate the inheritance tax liability on the shares. The Cross Option Agreement is structured so that neither party is obliged to buy or sell (which would prevent BPR from applying) — instead, each party has the option to do so. Tax advice should always be sought when arranging Shareholder Protection.
Tax treatment depends on individual circumstances and may be subject to change. We recommend seeking independent tax advice.
Example Scenarios
Two-director company
Two directors each own 50% of a company worth £2 million. Each takes out a £1 million life insurance policy on the other's life, written under a Cross Option Agreement. If one dies, the surviving director receives £1 million to buy the deceased's shares from their estate.
Three-shareholder business
Three shareholders each own a third of a business. Shareholder Protection is arranged so that if any shareholder dies, the remaining two have the funds to purchase their share — maintaining equal ownership and control.
Critical illness trigger
A shareholder suffers a serious illness and can no longer contribute to the business. The critical illness element of the Shareholder Protection policy provides funds for the remaining shareholders to buy out their share.
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Why Choose JK Insurance Brokers?
- Whole-of-market access
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