The importance of shareholder protection for SMEs
As a business owner or shareholder of an SME, it’s important that you protect your business against the untimely death of a major stakeholder. Shareholder protection insurance can have a key role to play in this process.
Should a business owner or stakeholder die unexpectedly, it could have a serious impact on the business, not to mention the shareholder’s family. Yet despite this, research by Legal & General shows that 37% of businesses still don’t have share protection cover in place.
All sorts of complications can arise should a business owner or shareholder die with no share protection cover in place. For example, it could see his or her share in the business passed to his/her family. This means that the surviving business owners could potentially lose control of a proportion or, in some cases, all of the business. The family might possibly choose to become involved in the ongoing running of the business or they could even sell their shares to a competitor. These options may not appeal to the remaining shareholders.
Even if the family members and/or other beneficiaries decide to cash them in and sell to existing shareholders, those shareholders may not have adequate funds available to purchase them. A share protection policy can help in all the above scenarios.
After the demise of a shareholder, shareholder protection insurance can help ensure that the whole financial process is as smooth and stress free as possible. It can also help the remaining shareholding directors to keep control of the business.
In simple terms, it works as follows. Should a business owner die, shareholder protection provides a lump sum to the remaining business owners. This lump sum could be used to help purchase the deceased partner’s interest in the business.
In more detail, share protection involves writing up a series of legal agreements that set out how shares are to be managed if a stakeholder passes away. Insurance policies can be taken out on the lives of each shareholder, either by the shareholders themselves or the company as a whole. Should a shareholder die, then the policy will pay out to purchase the shares of the deceased holder.
The benefits of share purchase protection include helping with business continuity and providing support for inheriting family members. With shareholder protection insurance in place, shareholders have the peace of mind that should a fellow shareholder die, the remaining shareholders will have the monies in place to purchase assets, quickly and efficiently. This will help the business return to normal as soon as possible.
For the inheriting family, many would rather receive money to relieve the stress after the loss of a major breadwinner. With shareholder protection insurance in place, company stakeholders can ensure that their families receive adequate financial compensation in the case of their death. The policies help to provide a fair buy-out price, as well as a simpler, more stress free process.
Shareholder protection insurance can also be useful to insure against serious illnesses. Once the right agreements and policies are in place, the sick or incapacitated shareholder is in a position to be able to sell his/her shares to the remaining shareholders. This can be a big weight off the minds of all shareholders.
There are various ways in which shareholder protection policies can be written, depending on the nature and structure of the business, as well as their individual preferences.
To discuss how shareholder protection can protect your business and your family, and what the right approach is for you, contact Kellands Corporate.