Ownership Protection

Safeguarding a Business When a Shareholder Dies

Ownership protection, known as either shareholder or partnership protection, is an arrangement of insurance and option agreements which protects surviving business owners on the death or serious illness of a fellow owner. This protection provides both necessary capital and rights to shares, ensuring surviving business owners can keep control while providing value to the deceased owner's family.

Do I Need Ownership Protection?

If a shareholder died, could you afford to purchase their share? If not, shareholder protection can help safeguard your business ownership.

How Does Shareholder Protection Work?

In the event of a business owner dying or being diagnosed with a terminal illness (life expectancy less than 12 months) or a specified critical illness, share protection arrangements provide a lump sum to the remaining business owners. This sum can be used to purchase the deceased partner, shareholding director, or member's interest in the business.

Cross Option Agreement

A cross-option agreement, also known as a double-option agreement:

• Grants business owners options on their shares

• Comes into force when a shareholder dies

• Gives surviving owners the option to buy the deceased's shares

• Gives the deceased's estate the option to sell shares to surviving owners

• Is typically backed by an insurance policy

• Allows for potential business property relief for IHT calculations

What Are The Tax Implications?

• No income tax liability on death claim proceeds due to the qualifying nature of policies

• Capital Gains Tax is not applicable on death proceeds

• Critical illness or terminal illness claims may incur capital gains liability

• No Inheritance Tax (IHT) at the outset or on additional premiums when all owners participate

• No surrender Inheritance Tax on policy upon death

• Inheritance Tax on share protection upon death exempt due to 100% business property relief

Setting Up Shareholder Protection

There are three main ways to set up a shareholder protection arrangement:

• Life of Another

• Own Life in Trust

• Company Share Purchase

Each method has its own merits, affecting the treatment of premiums and proceeds differently.

We will assist you in recommending necessary cover, working with your accountants to accurately evaluate your business and determine the required coverage for all insured shareholders.