Updated: February 28, 2020

Minority Shareholder Protection

Learn all about how to protect your business in the event of the death of a minority shareholder.

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Richard Angliss

Author: Richard Angliss - Finance Expert

Updated: February 28, 2020

The loss of a minority shareholder without an agreed succession plan or appropriate insurance protection in place can have an equally distressing affect upon a business as a majority owner who may play a more significant role in the day-to-day operations.

The sudden death or illness of a minority shareholder can also cause unexpected issues for a company which aren’t always apparent until after the event has occurred.

This article looks more closely at some of these potential issues and explains why it’s important for a business to ensure shareholder protection is in place for anyone holding ownership in the company.

What is minority shareholder protection and why is it important?

The same definition for shareholder protection applies to both minority and majority shareholders. There is no bespoke product which caters specifically for either type of ownership status.

Shareholder protection is an insurance policy designed to provide financial assistance for surviving shareholders in order for them to purchase a recently deceased owner’s share of the business from the beneficiaries.

Why is it important for a business to have a written succession plan in place for minority shareholders?

Regardless of whether they are a minority or majority shareholder, in the event of their death an owner’s share of the business passes to their estate. If no written agreement or funding is in place, a beneficiary automatically inherits the deceased owner’s property and can then decide what to do with their share of the company.

The decision reached by a beneficiary could lead to one of two different but ultimately damaging scenarios:

The beneficiary may opt to keep their shares and take an active role in the business which could result in a conflict of interest with the remaining shareholders to the detriment of the company

Or the beneficiary decides they do not wish to take any part in the business and indicates they intend to sell their share holding to the highest bidder. If the other shareholders cannot meet the beneficiary’s valuation they could sell to a third party (possibly even a competitor)

Either of these scenarios could cause disruption for the business, affecting its profitability and even putting it’s long-term survival in jeopardy. This is why having shareholder protection in place is equally important, whether for majority or minority owners as they retain control over what happens to each other’s shares.

It may prove to be more relevant for minority shareholders, particularly if they do not have any active involvement in the business. It’s much more likely their beneficiaries will have little to no emotional attachment to the business, therefore prompting them to sell their inherited shares to whoever offers the most money.

If you’d like to know more about how important shareholder protection can be for business owners, regardless of how many shares they hold, give us a call or make an enquiry and we can arrange for an expert to get in touch.

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How much life cover protection does a business need for a minority shareholder and how much will it cost?

A properly constructed shareholder agreement would include a valuation of each owner’s share of the business in the event of their death. This amount would then form the basis of the level of life cover provided by each shareholder protection policy put in place.

For example, if a minority shareholder’s part of the business was valued at £100,000 (as stated in the written agreement), this is the amount of life cover required for the policy.

The cost of any shareholder protection policy will vary depending upon the applicant and is typically determined upon the following factors:

  • Age
  • Amount of cover and term required
  • Medical history
  • Lifestyle
  • Occupation/line of work

Finding the most competitive quotes for shareholder protection can be tricky but this is where we can help. If you make an enquiry we can arrange for an advisor we work with to get in touch and arrange quotations from a number of different providers.

The advisors we work with are regulated by The Financial Conduct Authority and so you will be dealing with a highly trained person that adheres to strict rules of conduct.

Can it include critical illness cover?

Yes it can. There are a number of providers who can extend their shareholder protection coverage to include payment of the sum assured upon diagnosis of either critical illness or serious injury.

If a combined life/critical illness policy is favoured by the owners of a business they would need to ensure their shareholder agreement reflected the inclusion of this provision so that an owner’s shares can be purchased should a diagnosis (or injury) occur.

If you’d like to receive quotations from providers of this type of cover, get in touch and we will arrange for an expert to contact you directly.

What other types of business insurance may be important for minority shareholders?

It’s quite possible a minority shareholder also plays a crucial role as an employee of a business.

In this case there are two other forms of business insurance which may be worth considering:

Keyman insurance provides life cover payable to the business in the event of the death of a senior member of staff whose passing could have a detrimental effect upon the company’s profitability.

Relevant life cover provides death-in-service benefits to an employee’s family or nominated beneficiary if they were to die whilst under contract with a company.

Speak to an expert

Shareholder protection provides important financial assistance for all business owners, whether as a minority or majority shareholder. In the event of an owner’s death, the surviving shareholder’s must be able to control what happens with their holding.

The advisors we work with can discuss the benefits of shareholder protection with you in more detail. All advice is free and any information is always given in the strictest confidence. Call us on 0808 189 0463 or make an enquiry to get started.

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We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in shareholder protection insurance. Ask us a question and we'll get the best expert to help.

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Richard Angliss

Richard Angliss

Finance Expert

About the author

Richard Angliss has made a career in financial services which stretches over 40 years.

His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

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