Posted on 1st June 2016
Shareholder Protection – Why you need it and why existing arrangements should be reviewed
Keep control of your business
If one of your shareholders dies or is suffering from a severe illness, their shares will usually pass to their beneficiaries. To regain full control of the business, the surviving shareholders will need to buy the shares back. But they might not have the available capital to do this.
What is a shareholder/partnership?
Shareholder and Partner Protection provides a business with a cash lump sum if a business owner dies or suffers a severe illness. This lump sum provides the capital to enable the surviving business owners to purchase the deceased’s or incapacitated individual’s share of the business – allowing them to keep control of their business.
Who is Shareholder and Partner Protection designed for?
Where all the owners of the business are members of the same family then there is usually no problem with succession when one of the owners dies or becomes incapacitated. However, in businesses run by unconnected parties (or families where succession is not assured), the death or incapacity of an owner is likely to cause serious disruption to the business and problems for both the business and family of the owner concerned. This can apply equally to partnerships, LLP’s or limited companies.
Why is Shareholder and Partner Protection needed?
If a business owner dies or suffers a severe illness, their share of the business will usually pass to their beneficiaries. To regain full control of the business, the surviving business owners will need to buy the deceased’s or incapacitated individual’s share of the business. Many businesses will not have the available capital to do this and so Shareholder and Partner protection provides the framework where the right money is left in the right hands, at the right time.
Common Pitfalls and the Need to Review
We encourage all companies to review their shareholder protection arrangements. There are a number of reasons for doing so;
1. In our experience 8 out of 10 businesses do not have a scheme, or one that is fit for purpose.
2. Often arrangements are put in place and not reviewed.
3. Shareholders come and go, and percentage holdings change as well as business values
4. Shareholder agreements conflict with the company Articles of Association
5. Inappropriate levels of cover are used, and for the incorrect terms
6. Trusts are not always set up correctly
7. Cross option agreements are not put in place
The arrangements should provide the required amount of money, at the right time, and in the right hands.
Even if the arrangements in place are ‘fit for purpose’, in recent years the premiums for life cover have reduced and therefore equivalent cover can often be provided at a lower cost.
Our advice to businesses is to review their arrangements on a regular basis.
We carry out a review at our cost, so you really have nothing to lose and everything to gain by getting in touch.
If you think your business could benefit from either setting up a shareholder protection scheme, or reviewing your current one, then give our Hove office a call on 01273 208813.
"If Carlsberg did networking they would do it the BHBPA way. Each event is packed with great ideas, thought provoking presentations and fun. As a small business we feel supported and part of the community. We have built friendships and business relationships and there is always plenty of advice on hand to benefit us all so don’t hesitate to join whatever the nature of your business. "
""BHBPA is a really well organised and run group, great for networking and benefitting from knowledgeable local speakers with real business insight. Peter brings enthusiasm and humour which helps drive the association forward. I am glad to be part of it.""
"The BHBPA is the most effective and dynamic business organisation I have ever worked with in over 30 years in Local Government. It has a very active and large membership whose points of view are taken seriously by all government structures. Peter Liddell does an excellent job in providing unique and enjoyable networking opportunities where members interact and discuss points of mutual interest. It provides a forum for businesses to discuss common issues, to share experiences and to play a powerful and meaningful role in the Burgess Hill community. The BHBPA provides important and credible support for all its members and ensures that their best interests are represented where necessary. "
"Since joining BHBPA we have found it to be a dynamic and vibrant members’ organisation, with excellent, regular and informative meetings.
Peter Liddell does a first class job in ensuring that members’ interests are aired and addressed.