Shareholder Protection

The problem

Our client had seen rapid growth in their business and wished to bring in two more shareholders, having been the sole shareholder since the start of the company. He wanted to ensure that once these shareholdings were in place, no legal or financial issues would arise, having had complete control of the business previously.

His main concern was that in the event of the death of a shareholder, he may not know the person who would receive the shares through the deceased’s estate, and as such end up in business with someone he did not intend to be in business with.

“A good friend of mine recently died and his widow inherited his shares. She then ended up in a legal dispute with my friend’s former business partner on who should run the business and how to value the shares”, explained our client. “I am determined to not leave my partner in that position and now that I am bringing in two new shareholders I want to make sure that the right agreements and protection is in place”

Our solution

We worked very closely with the business owner, other shareholders and our client’s accountant in order to put in place shareholder protection.
Each shareholder took out individual life policies for their shareholding, for the benefit of the other shareholders.

In the event of the death of a shareholder, the remaining shareholders are left with a sum in order to purchase the shares form the deceased’s beneficiary.

We also ensured that completion of all legal paperwork – the cross-option agreement – was efficient and suitable in conjunction with the client’s solicitor. This agreement means that if the remaining shareholders wish to purchase the shares from the beneficiary, the latter is required to sell, and vice versa. If neither party wish to buy or sell, the shares can remain with the beneficiary.

Supporting businesses in securing their future

As professional advisers, we are well aware that the world of business protection is filled with complicated terminology and a multitude of options, which at face value appear to be more hassle than it’s worth.

We prioritised presenting our client’s options in simple and concise language in order that our client felt that they were receiving advice and making an informed decision, rather than being instructed without any knowledge of the service they were receiving.

An example of this is the equalisation of premiums for all shareholders. We explained the tax implications that would arise if premiums were not equalised and ensured that this took place.

The results

Having been the sole shareholder, our client now feels that he is able to look forward with his business. The company has three shareholders, but our client does not need to worry that this will lead to diminished control or legal complications. The legal and financial protection that we have put in place has given them peace of mind.

The benefits of shareholder protection:

  • Enables the business to grow without fear of losing control
  • Ensures that if a challenging situation arises following the death of a shareholder there is a legal process in place to support the family and the business
  • Limits the financial loss that the company will experience upon the death of a shareholder
  • We will review the arrangements on an annual basis to make sure that the agreements remain valid and the valuation of the business is documented.

Learn more about how our Shareholder Protection can prove valuable to your business

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