Partnership/Director Share Protection

Have you thought about what would happen if one of you were to die or become critically ill?

Would the remaining partners or shareholders have sufficient funds to buy your share in the business?

Would your dependents want to sell your share or become involved in the business?

If you or another owner of the business became critically ill, could somebody else purchase your share so that you could give up work?

You can ensure that the future of your business is taken care of by taking out either a Partnership Protection Plan or a Shareholder Protection Plan depending on your company status. This involves a legal agreement regarding future ownership of the business in the event of the death or critical illness of either you or another owner in the business. This is known as a cross option agreement.

With a Shareholder Protection Plan (or an Ownership Protection Plan) you can ensure that if a major shareholder of your company dies, the remaining shareholders will receive a lump sum payout to enable them to purchase his share of the business.

Share Protection Insurance is normally accompanied by a Cross Option Agreement that will stipulate that if a major shareholder dies, the other shareholders will be able to purchase his shares in the business. This will enable them to keep the company running smoothly.

The procedure is as follows:

• Set up life insurance for each director with a sum insured equal to their shareholding.
• Put the policies in trust to avoid tax implications when the remaining shareholders receive the lump sum payout.
• Set up a Cross Option Agreement which will facilitate purchase of the deceased person’s shareholding by the remaining company directors.

Advantages of Shareholder Protection

• If the deceased’s family do not wish to become involved in the business they can receive a lump sum instead for payment of their shareholding.
• It will provide sufficient funds to enable the remaining directors or shareholders to purchase the deceased’s share of the business.
• It can prevent the purchase of the deceased’s persons share by somebody who does not act in the best interests of the business.