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10 Things to Consider Before You Take Out Shareholder Protection

Although we don’t want to think about it, what if you lost one of your stakeholders due to a serious illness or accident? If you manage or run your own business with one or more major stakeholders, then it is well worth considering Shareholder Protection. Do you know what the impact would be on your business if a stakeholder or investor were to lose their life? Do you know what would happen to their shares? And, most importantly of all – is it possible that a relative of the shareholder could become involved in the running of your business?

 

Before you pick up the phone to discuss your insurance, carefully consider what would happen to your business should the worst happen and you lost a key stakeholder. We’ve put together a useful checklist below to help you choose the right Shareholder Protection for your business:

  1. What would be the effect on you and your business if one of your shareholders became seriously ill or died suddenly? Consider the role stakeholders play within your business. Your stakeholders could be major decision-makers or they may have a certain skill-set. They might lead and direct your business strategy. If you have stakeholders who have a vital function within your company, then protecting your assets is essential.
  2. How many shareholders do you currently have and could this change in the future? You will need to take out further cover if you increase the number of stakeholders in your business. Always keep your policy up-to-date, reflecting your current situation.
  3. Are all your shareholders in good health? An insurer will check the medical histories of all stakeholders, usually through a Health Questionnaire. The premiums may be affected if some of your stakeholders are in poor health.
  4. Would the company have enough money to purchase the stakeholder’s shares? Assess the amount required and your ability as a business to buy shares in the event of a stakeholder’s death – would it be possible? Ask your accountant to value your company shares (this will be required before you take out a Shareholder Protection policy).
  5. If you don’t have the money to buy shares, could you raise the money elsewhere? You may be able to raise finance through your assets or via another source. Without protection, the most important thing is to ensure you can afford to buy the shares from a stakeholder if they lost their life – or you could risk losing control of your business to a third party.
  6. If it’s unlikely you could raise enough money to buy the shares, what would happen if those shares were then sold to one of your competitors? Losing control of your business to a competitor could be a major blow, so make sure you are in a position where you can fund the purchase of any stakeholder shares. If you are in doubt, take out Shareholder Protection.
  7. What is the current value of the business? An up-to-date professional business valuation is important for many reasons including access to future finance, and yet this can often be overlooked if a business has grown quicker than expected. The value of your business will affect your Shareholder Protection premiums.
  8. Do you know when the last valuation was done, and have there been any changes since? This should be well documented – get an up-to-date figure from your accountant. Every time your company undergoes a major change, especially an increase or decrease of stakeholders, your insurer needs to be informed.
  9. Is the business growing steadily and, if so, how often do you re-value the business? If you are a rapidly expanding company, then it is vital to have your business valued at regular intervals – we suggest this is done on an annual basis or after a major expansion. As your business grows, your premiums may change.
  10. If the business is contracting and you already have Shareholder Protection, are you over-insured and possibly paying unnecessary premiums? This is a very important point – always check your policy is relevant to the nature of your business. Ask an advisor to review any existing policies to make sure you are paying the right level of premium for your company.

As well as protecting your company from the loss of a shareholder (or an investor), Shareholder Protection could provide you with much-needed funds to put back into your business at a very sensitive time. Make sure your business is well-prepared for such a loss.

 

To find out more about Shareholder Protection, please get in touch or call 0116 366 6861 to speak to one of our advisers.

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