Shareholder Protection

Key person insurance for shareholders should properly be called shareholder insurance. This protects both the company and the shareholders from the possible effects of long term illness or death of a shareholder.

If a shareholder dies then their family may want to sell their stake in the company. This may result in the company being controlled by one of your competitors. You may find that the family members want to actually participate in the running of the company replacing the original shareholder against the wishes of the original shareholders.

Shareholders can be protected in a number of ways:

Primarily there should be a formal agreement drawn up defining what happens when a shareholder becomes incapacitated. This then formally gives the remaining shareholders the right to buy the shares from the original shareholder or their estate.

Having decided what happens with the shares, then shareholder insurance policies can be taken out for the value of the share purchase for each of the shareholders in the company.

This way you will have provided a contingency to allow the business to continue as originally intended without the possibility of a takeover should the worst happen and you lose a major shareholder.