Shareholder Protection | LR Connections LR Accounting

Just implementing a policy without the correct agreements in place could cause your family to receive an unexpected inheritance tax charge, so that’s why we work with our accountants “LR Accounting” to ensure we insure the right people in the right way to protect your business and make sure that the surviving shareholders have control and not a third party.

In essence If a major shareholder of your company dies, the remaining shareholders will receive a lump sum pay-out to enable them to purchase their share of the business. the reason for doing this is to stop someone from ever inheriting the shares or purchasing the decided shareholders shares and becoming someone who would be able to have a controlling say in the running of the business.

The most optimal way to set up a Share Protection Insurance Policy, is to typically have the policy accompanied by a Cross Option Agreement. This will traditionally stipulate that if a major shareholder dies, the other shareholders will have the ability to be able to purchase their shares in the business. This will enable the company directors to be able to keep the company running as smoothly as possible.

The Procedure and Advantages

We have provided you with a small sample of bullet point, to give you a better understanding of how the process will work. And the reasons why setting up Shareholders Protection could be beneficial for you. If you wish to learn more about Shareholders Protection then Contact LR Connections to arrange a time to talk to one of our advisers that is convenient for you.

The procedure is as follows:

  • To start you we will set up life insurance for each director with a sum insured equal to their shareholding.
  • Followed by placing the policies into a trust, this will be done to help avoid tax implications when the remaining shareholders receive the lump sum pay-out.
  • Finally setting up a Cross Option Agreement which will effectively enable the purchase of the deceased person’s shareholding by the remaining company directors.

Advantages of Shareholder Protection

  • One of the most important points for implementing this is has to be 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.
  • The policy’s that would have been put in place, will provide sufficient funds to enable the remaining directors or shareholders to be able purchase the deceased’s share of the business.
  • One of the most advantageous reasons for setting this up for the remaining directors or shareholders is it can prevent the purchase of the deceased’s persons share by somebody who does not act in the best interests of the business.
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LR Connections provides expert independent financial advice, accountancy and estate planning services