Protecting Limited Company Directors
Scenario
Three business partners had built a very successful business in a relatively short period of time. Something that they had never considered is what would happen should any of them pass away or become seriously ill and be unable to work. If one of the partners was to pass away without cover in place, then there may not be a means for the other shareholders to the shares. It might also be that there isn’t sufficient cash available within the business. In this scenario the deceased partners spouse could look to start working in the business, or they have the option of selling the shares to someone else.
Recommendation
When a shareholder faces a serious illness or passes away, it can create significant uncertainty for both the individual and the business. Shareholder protection cover – combining life insurance and critical illness protection – provides a vital financial safety net. If a shareholder suffers a specified critical illness or dies, the policy pays out a lump sum that allows the remaining shareholders to buy their shares. This ensures the business continues to operate smoothly and without disruption.
For the affected shareholder or their family, the payout offers financial support – whether to aid recovery, facilitate retirement, or provide for loved ones – while safeguarding the company’s stability and future.
To ensure a smooth and tax – efficient transfer of funds, shareholder protection policies are typically written into a trust. This setup allows the policy payout to be made quickly and directly to the surviving shareholders, without delays caused by probate or tax complications.
In most cases, the trust is structured so that the remaining shareholders act as both trustees and beneficiaries. This means they receive the funds from the policy, which are then used to buy the deceased shareholder’s shares from their estate – helping maintain control of the business and avoiding disruption during
a difficult time.
Outcome
West End Protect put in place a new policy for each of the 3 shareholders. This ensures that if one of the shareholders became seriously ill or passed away, the other shareholders have the ability to buy their shares quickly during a very stressful time for all involved. This protects the business from more disruption as operations can continue as normal, and also means that the family of the shareholder receives the value of their shares quickly
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