Shareholder Agreement & Partnership Protection Advisers

This cover ensures control of the business remains with the surviving owners, rather than passing to someone who is unwilling or unable to contribute to the running of the business, while ensuring that the deceased’s beneficiaries are provided for. It also ensures that shares of the deceased or ill shareholder are not sold off to a competitor.

It’s not a question of setting up an insurance policy. We can provide advice which can complement the cover such as the requirement of a  “cross/double option” agreement. This gives the surviving owners the option to purchase the deceased’s interest in the business, and the personal representatives of the deceased the option to sell to the surviving owners. If either party chooses to exercise their option, the agreement becomes binding.

Where there are more than two owners of the business the cover generally is written in trust. If the policies were not placed in trust, the proceeds would be paid to the deceased’s estate. The surviving owners of the business require these funds in order to meet their obligations under the double option agreement. This will be achieved by an appropriately worded trust.

Where there are only two owners of a business, and only ever likely to be two, it may be best to effect life policies on each other’s lives (on a ‘life of another’ basis). This still ensures the correct person, i.e. the surviving owner, receives the sum assured under the life policy, but without the need for a trust. Where owners of the business are closely related, HM Revenue & Customs (HMRC) may judge that a business protection arrangement involving trusts is not a purely commercial arrangement. This risk can be avoided by effecting ‘life of another’ policies. In any other case where ‘life of another’ policies are used, e.g. effected by the partners jointly, a trust would be inappropriate.

If you would like further advice or information, please call us on 0118 916 5480 or complete an enquiry form.

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*Information correct as of 1st May 2016

Author: Simon Claxton | January 1st, 2015

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Simon Claxton

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Get in touch:   Reading: 0118 916 5480   London: 020 7036 8767   info@macbeths.co.uk