Manning Financial


What is Business Protection?

On death the shares of a deceased director form part of their estate.

Those who inherit the shares may not want to get involved in the business or conversely the survivingshareholders may not want the next of kin to come into the business.

The most feasible option is to sell shares back to the surviving shareholders. This would require the shareholders to produce a substantial lump sum.

The solution is business protection – an arrangement can be put in place whereby on the death of a shareholder, funds become available to buy shares back from the next of kin.

Categories of Business Protection

There are two types: partnership and company

How it works

With Business Protection, a company or partners enters into a legal agreement with each of itsto buy back shares from their personal representatives in the event of death.

The company takes out a life assurance policy on each shareholder, to provide funds to enable thecompany to fulfil its obligation under the agreement.

In the event of death, the proceeds of the life assurance policy are payable to the company to beused to buy back shares from the deceased’s next of kin.

The major advantage of the “Corporate” arrangement is that the cost is borne totally by thecompany with no benefit-in-kind (BIK) implications for the individual shareholders.

This expense for the company is not tax deductible.

Legal Agreements

A legal agreement is put in place between company directors or partners, giving the company/partnership an option to buy the shares back from the deceased’s next of kinand the next of kin an option to sell the shares to the remaining shareholders or partners. If both partiesmutually agree not to exercise the option, the deceased shareholders’ successors retainshareholding and come into the business.

Professional Advice

The complexity of the business protection arrangement means it is a method of share protection insurance that should not be considered without the assistance of legal and taxationadvisors. This is because it needs to comply with Company and Revenue Law.