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Insurance: Personal, Family & BusinessShareholder Protection

Shareholder Protection

What is shareholder protection?

This is where a small business operates as a private company and there are directors and shareholders.

Shareholder protection is similar to partnership protection, but there is no compulsion on the part of the surviving shareholders to buy the deceased shareholder’s shares from their estate. Even where they would like to, the cash is not always readily available.

The problem is twofold:

  1. Possible financial hardship for the deceased’s family – there being no ready market for the shares (especially if the deceased held a minority holding) or restrictions laid down in the transferability of the shares in the company’s Memorandum and Articles of Association.
  2. The surviving shareholders find themselves sharing control of their business with an outsider who may know nothing about the business.

What is the solution?

As with partnership protection, a life assurance plan would enable the surviving shareholders to purchase the shares from the deceased shareholder’s estate.

Again, the type of plan and length of term will vary according to the company.  Term assurance could be used to protect shareholders against death before retirement.  Convertible term or whole of life plans could be considered if the shareholder wanted further protection after they have retired.

By adjusting the shareholders remuneration, equalisation of contributions can be achieved if they are all working for the company.

What is the tax situation?

The tax situation for shareholder protection is similar to the tax situation for partnership protection.

A particular general need can sometimes be met by alternative solutions. For example, family protection to provide cash in the event of death could be provided by term assurance or whole of life assurance. Protection against ill health could be provided by an accident and sickness plan or permanent health insurance.


We are pleased to offer consultation and advice in this complicated area and have strong relationships with specialist legal professionals who can assist with any required contracts and business trusts.

No guarantee can be given that the information provided is accurate in the present or the future. It is not intended to constitute either a statement of applicable law or financial advice, and responsibility cannot be accepted for any subsequent loss following activity or inactivity by any individual or organisation. Indeed, such information should NOT be acted upon without first receiving appropriate and specific professional advice.