In the fast-paced world of business, shareholders are pivotal. But what happens when an unforeseen circumstance – like a critical illness or death – impacts a key shareholder?

The disruption can be massive, often leaving a company in uncertainty. That’s where shareholder protection steps in, ensuring the business remains steady and resilient.

Why Consider Shareholder Protection?

While every business plans for growth, few anticipate the sudden departure of a key shareholder. Shareholder protection offers an essential safety net, safeguarding the interests of all stakeholders and keeping disruption to a minimum. Benefits of shareholder protection include:

Ensuring Stability: It provides funds so that remaining shareholders can buy out the shares of the critically ill or deceased shareholder, ensuring business continuity.

Fair Value: The family or estate of the affected shareholder receives the rightful value for their shares, preventing undervaluation or forced sales.

Preventing Unwanted External Ownership: Without such protection, shares might end up in the hands of external third parties, potentially disrupting the company’s ethos and operations.

How Does Shareholder Protection Work?

Primarily, there are three main methods:

Own Life Plans Under Business Trusts: Each shareholder has a life plan equivalent to their share value, held under a business trust for other shareholders.

Life of Another Plans: Directly owned by fellow shareholders.

Company-Owned Plans: Enables the company to repurchase the shares.

In addition to these plans, a cross-option agreement is usually put in place. This agreement allows surviving shareholders the option to buy shares from the deceased’s representatives. Crucially, it also ensures the deceased’s estate retains the much-needed business property relief for inheritance tax purposes.

Determining the Value of Shares

One challenge in the process is establishing the share’s value. Typically, this is where professionals, particularly company accountants, step in. They might use methods like:

Multiple of Maintainable Profits: Evaluating past, present, and future profit projections.

Dividend Yield: Calculating the share price based on desired yields from dividends.

Net Assets: Especially for companies like property investment firms.

What Could Shareholder Protection Look Like For You?

For businesses considering shareholder protection, the question often arises: “What might it cost us?” Here’s an example of Business Term Assurance payable on death only, based on a 5-year renewable basis for a non-smoker:

Age 41 next birthday – £12.02 per month

Age 51 next birthday – £26.63 per month

It’s important to note that these figures are based on standard health terms and are subject to medical underwriting. Every individual case will vary, and the final premium may be adjusted based on health assessments and other factors. Our advisors would be delighted to provide an accurate quote based on your individual circumstances.

Protecting Your Business is Protecting Your Legacy

Alextra Wealth understands the intricacies of businesses and the nuances of shareholder dynamics. Our expertise in shareholder protection ensures that businesses remain intact and prosperous, even amidst unforeseen challenges.

Planning ahead is not about anticipating gloom; it’s about ensuring that the company you’ve built, or invested in, remains strong, no matter the circumstances.

Expertise You Can Trust

If you’re unsure about the need for shareholder protection, or how to navigate its complexities, the team at Alextra Wealth Management is here to help. With a rich blend of experience, knowledge, and commitment, we ensure your business interests remain secure.

Discover how Alextra Wealth Management can guide you through shareholder protection, safeguarding the future of your business. Speak to us today for friendly and knowledgeable advice.