020 8668 6080

PMS Business

Shareholder Protection Insurance

Help surviving shareholders retain control of the business while providing financial value to the family or beneficiaries of a shareholder who dies or suffers a covered critical illness. Set up with the right agreement, it gives everyone a clear plan.

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What is Shareholder Protection Insurance

Shareholder Protection is life, or life and critical illness, cover arranged so that the remaining shareholders have money to buy the shares of a shareholder who dies or becomes critically ill. It is normally set up alongside a legal agreement that says how the shares will be bought and sold.

What may happen when a shareholder dies

Their shares usually pass under their will to their family. The family may want cash rather than a stake in a business they do not run, while the remaining shareholders may want to keep control but not have the money to buy the shares. Without a plan, both sides can be left in a difficult position.

How Shareholder Protection works

Each shareholder is insured for the value of their shareholding. Policies can be owned by the shareholders themselves, often written in trust for the others, or by the company where it is set up to buy back its own shares. On a valid claim, the money goes to the people who need to buy the shares, and the agreement sets out how the sale happens.

Who should consider Shareholder Protection

Any company with two or more shareholders who would want to keep the business in the hands of the people running it — particularly owner-managed companies where the shareholders are also the directors.

Valuing the shares and calculating cover

Cover is based on what each shareholding is worth. Your accountant can help agree a valuation method, and the cover should be reviewed as the value of the business changes.

Life cover and critical illness options

Life cover deals with the death of a shareholder. Adding critical illness cover can provide money if a shareholder is diagnosed with a covered condition and wants, or needs, to step away. Definitions vary between insurers.

Share purchase and cross-option agreements

The insurance provides money; the legal agreement provides the mechanism. A cross-option agreement, for example, gives each side the option to buy or sell the shares. The agreement should be prepared or reviewed by a solicitor, and we work alongside them.

Keeping the arrangement up to date

Share values, shareholders and circumstances change. We recommend reviewing the cover and the agreement regularly, and whenever shares change hands or the business is revalued.

Benefits for shareholders and their families

The remaining shareholders can buy the shares and keep control, and the family of the shareholder who has died or is critically ill can receive a fair value in cash rather than an unwanted stake.

Potential benefits and important considerations

Benefits

  • Money available to buy the shares when it is needed
  • A fair value for the shareholder's family
  • Clarity for staff, customers and lenders about who runs the business

Things to consider

  • Needs a suitable legal agreement prepared or reviewed by a solicitor
  • Cover must be kept in line with the value of the shares
  • Tax and trust treatment depends on how the arrangement is set up

How it works

How we set up shareholder protection

Insurance and the legal agreement are put together, so the plan works when it is needed.

  1. 01

    Agree values and aims

    We talk to the shareholders about what each stake is worth and what everyone wants to happen.

    Valuation basis agreed
  2. 02

    Coordinate the agreement

    We work with your solicitor and accountant on the agreement and how the policies are owned.

    Structure agreed with your advisers
  3. 03

    Arrange and review

    Cover is put in place for each shareholder and reviewed when values or owners change.

    Cover matched to the shareholding

Ready to take the first step?

Your initial consultation is without obligation. Speak with an adviser in Croydon or over Zoom.

020 8668 6080
Frequently asked questions

Shareholder Protection FAQs

A family unpacking cardboard boxes on the floor of their new home

  • No. The policy provides the money; the legal agreement sets out how the shares are bought and sold. Both are needed.

  • It depends on the structure. Shareholders may pay for policies on each other's lives, or the company may pay where it will buy back the shares. Your accountant should advise on the tax position.

  • Premiums can differ significantly. Some businesses agree to share the overall cost; that is a decision for the shareholders.

  • At least every year or two, and whenever the value of the business or the shareholders change.

Related PMS Business services

Arrange a Shareholder Protection review

Speak to us about your business. Your first conversation is without obligation.

Call us on 020 8668 6080

Important information

We do not give legal advice. Any shareholder, cross-option or partnership agreement should be prepared or reviewed by a solicitor. An insurance policy does not transfer ownership of shares or a partnership interest by itself.

Tax treatment depends on individual and business circumstances and may change. We do not give tax advice; please speak to your accountant or tax adviser. The Financial Conduct Authority does not regulate tax advice.

Trusts and taxation are not regulated by the Financial Conduct Authority.

Covered conditions, definitions, exclusions and any survival period vary between insurers and policies. A claim is paid only if the policy definition is met.

Before you proceed we will confirm in writing whether PMS Mortgages advises on and arranges this cover, or introduces you to another firm, and what that firm's role is.