It’s important to make sure you are prepared, even for the unexpected.

In the unfortunate event that a shareholder suffers a serious illness or dies, shareholder protection can help remaining shareholders retain control, minimise disruption and ensure beneficiaries are provided for financially.

Shareholder protection can be a complex area of planning, depending on the structure of your business and your specific objectives.

We’ve outlined some need-to-knows.

  1. Have a solid structure

There are three main ways shareholder protection can be arranged:

  • Own life under business trust
  • Life of another basis
  • Company share purchase

Number of shareholders, percentage of shareholdings, rights of the shareholders, any legal agreements you have in place and individual family situations should be considered before deciding on the arrangement.

  1. Know the tax considerations

Shareholder protection needs to also work for you as a business owner, the business itself and the ultimate beneficiaries so its important understands the tax implications of transferring ownership of shares after serious illness or death and the payment of the insurance policy proceeds.

  1. Be consistent

Your business articles, shareholders’ agreement, cross options and any related insurance should be consistent. Whatever happens, you need to ensure that both the shares and the proceeds of the insurance end up in the right.

  1. Have a look at your options

The way shareholder protection is structured will determine who is best placed to pay the premiums, both from an ownership and tax perspective.

  1. Know your worth

The market value of your business will help decide what level of insurance is appropriate. It is vital to work your advisor to fully understand and agree on a valuation method at the outset, in the event of death or on exit.

  1. Life, critical illness cover, or both?

Shareholder protection can be arranged to include life cover, critical illness cover, or both. Where critical illness cover is included, the shareholder’s agreement and cross option should explicitly define the circumstances under which the shares can be “called”. This is where a shareholder uses their option to buy the shares.

  1. Seek independence advice

It’s really important to make sure that your advisor understands you and your business and that they’re acting in your best interests. An independent adviser shouldn’t be linked to any insurance company, that way they can advise you on the best solution based on your specific circumstances.

  1. Regular reviews

Your business could look very different in 1, 3 or 5 years’ time so it’s always good to do a regular review of your plan.


If you’d like to know more about how we can help you protect your financial future please fill in your details in the form below and a member of the team will be in touch.