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Business protectionBuy the shares back without selling the company.
Shareholder protection gives the remaining owners the money to buy the shares of one who dies or becomes seriously ill, instead of finding themselves in business with that person's family, or with whoever the family sells to.
Two halves that only work together
The insurance is the easy half. Without the agreement alongside it, the money can arrive and nothing obliges anybody to do the sensible thing with it.
- What it funds
- The purchase of a departing shareholder's stake
- What it needs
- A cross option agreement to work properly
- Who is covered
- Each shareholder, usually proportionally
- Also called
- Share purchase or partnership protection
The policies
Each shareholder is covered for roughly the value of their holding, so the survivors have funds available at the moment they are needed.
The cross option agreement
A legal agreement giving the survivors an option to buy and the family an option to sell. Once either exercises it, the other must comply. Your solicitor drafts it.
A current valuation
An agreement referring to a valuation from six years ago causes arguments. The basis of valuation should be stated and revisited.
How we arrange it
Agree how the shares are valued
Either a figure everyone accepts now, or a stated method for arriving at one later. Write it down.
Put the policies in place
Usually one per shareholder, sized to their stake and arranged so the proceeds reach the right hands.
Get the cross option agreement drafted
By a solicitor, alongside the cover rather than months afterwards. This is the part that makes it enforceable.
Revisit it when things change
New shareholder, a change in the split, or a materially different valuation are all triggers to look again.
Shareholder Protection, answered
- What is a cross option agreement? A legal agreement under which the surviving shareholders can require the family to sell, and the family can require the survivors to buy. Because neither side is obliged until one exercises the option, it is generally structured so the shares still qualify for available reliefs.
- Who owns the policies? It depends on the structure. Own life in trust for the other shareholders is common, as are life of another arrangements or a company-owned approach. Which suits you depends on the shareholding and your accountant's view.
- How do we value the shares? By agreement, by a formula such as a multiple of profit, or by referring the question to the company accountant at the time. What matters is that the basis is written down before it is needed.
- What if we do not have this in place? The shares pass under the deceased's will, typically to their family. You may then be in business with someone who has no interest in the company, or watch a stake sold to a stranger.
- Does it work for partnerships and LLPs? Yes, on the same principle, with the agreement adapted to the partnership deed or LLP agreement.
The policies and the agreement. Cover without an agreement is money with nothing compelling anyone to use it properly.
We arrange the cover and work alongside your solicitor and accountant on the rest of it.
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Ask us about shareholder protection
Tell us where you are up to and an adviser will come back to you. The answers below just save us a phone call working it out.
- One of the five advisers on Eastfield Road, not a call centre.
- Usually the same working day.
- No obligation, and nothing to sign at the end of it.
Would rather talk now? Call 01733 602 033.
More than one shareholder?
If you have never documented what happens when one of you dies, start here.