5 benefits of shareholder protection insurance
Shareholder protection insurance can help get your business through a difficult time in the event a shareholder dies or becomes too ill to remain in the company.
At what will already be a personally difficult time, this level of disruption can be devastating for a business of any shape and size, and can quickly lead to the company’s demise if you’re not prepared.
This is especially true if a shareholder dies unexpectedly.
If that happens, there’s no guarantee the business will have the funds available to finance the purchase of shares to get control of them back into the business.
That can lead to further disruption.
And it’s not just the business that can benefit from shareholder protection insurance.
It also brings a level of reassurance to the deceased shareholder’s family.
In this blog we look at the top five benefits associated with shareholder protection insurance.
Financial protection for the business
If a shareholder dies, the remaining shareholders will need to buy back the outgoing shares to ensure they remain within the company.
But expecting a business to have the money available for a purchase like this isn’t always realistic.
Especially if the value of the shares has increased since the business started - which you’d expect it would.
Even if a business has reserves available, can they really be taken out of the business without causing serious financial problems later on?
And with banks often reluctant to lend to businesses during times of major upheaval, where does the money come from?
Shareholder protection insurance ensures you have the financial resources to quickly buy back any outgoing shares and reduce the disruption to your business, without putting its financial future at risk.
Ensure the smooth transition of shares
In the event of a shareholder’s death, the most likely scenario is that their shares will automatically go to their family or designated beneficiary.
This can cause some serious problems for the business.
First, there’s no obligation for the shares to be sold back to the business.
The family could decide to retain control of the shares.
Or they could decide to sell the shares to another party, including a competitor.
Either way, this will cause extreme disruption to the business and its remaining shareholders.
With shareholder protection in place, there is a legal agreement that the remaining shares will be sold back to other shareholders in the business using the payout from the policy.
Neither party can refuse, so it ensures a smooth transition of the shares back into the business.
Provide clarity over share value
It’s not just the business that will benefit from shareholder protection insurance.
It can also ensure the deceased shareholder’s family gets a fair payout for their shares.
There’s no guarantee this will happen if they sold the shares on the open market and they could lose out significantly if they don’t really understand the value of the shares they have.
Shareholder protection provides a clear, transparent calculation for the share valuation, so it’s clear what the shares are worth, and what the family will receive.
Retain control of the business quickly
Even if the deceased shareholder’s family do decide to sell the shares back to the remaining shareholders without an insurance policy in place, it can cause a period of disruption while you negotiate the sale and value of the shares being bought back.
With shareholder protection, this process is much quicker and smoother so the remaining shareholders can get control of the outgoing shares quickly and reduce the disruption caused to the business.
Provide peace of mind for all parties
Ultimately, shareholder protection insurance provides peace of mind to all parties in the event of a shareholder’s death.
For the business, it provides reassurance that the finance is there to fund the buy back of outgoing shares to at least reduce some of the disruption within the business.
It helps ensure the smooth transition of shares back to them, and avoid those shares ending up in the hands of an unwanted third party.
For the deceased shareholder’s family, it provides peace of mind that they’ll receive a fair valuation for the outgoing shares and is one less thing to worry about at a time of personal loss.
Get the right shareholder protection insurance deal with Rigby Financial
At Rigby Financial we’ve helped hundreds of shareholders find the right deal on a shareholder protection insurance policy to provide peace of mind, within their budget.
We can work with you to understand the level of insurance cover you need, and then help you find the right deal at the right price for your business.