Depending on the importance of the shares that are passed onto the family, they may try to change or influence the direction of the business with little experience, or they may sell the shares onto someone equally as inexperienced, or even a competitor. Moreover, current shareholders may also want to purchase the shares, but may not have the funds to purchase them or may have to wait for probate.
Shareholder protection insurance can help to bypass this by providing funds so that the business owners and shareholders can purchase the equity of the deceased shareholder. And a shareholder agreement can help to decide what will happen to a shareholder’s shares if they were to pass away. This provides peace of mind for the business and for the shareholders as there won’t be any confusion about what happens to the shares and the business can continue as usual without a large amount of disruption. Also, it guarantees that the family of the shareholders will get a sum of money at a fair, mutually agreed price once the shares have been bought.
Furthermore, shareholder protection doesn’t just have to pay out once the shareholder has passed away. Some policies will also pay out once a shareholder has been diagnosed with a terminal illness, letting them sell their shares at the agreed price so the business can carry on operating as normal.