Shareholder Protection Insurance
CCW Global is able to offer businesses in Hong Kong and across the APAC region with high quality Shareholder Protection insurance products.
Designed to protect companies against the death or disappearance of key shareholders, a Shareholder Protection Insurance policy ensures continuity through coverage of any losses experienced due to the loss of a key shareholder.
How Does Shareholder Protection Work?
A Shareholder Protection Insurance policy is often a useful purchase for privately owned limited companies and partnerships as this type of coverage is designed to protect shareholding directors of these organizations.
Should a major director-shareholder of a company die, suffer from a serious illness, or become permanently disabled, a Shareholder Protection Insurance plan will help the business to ensure that sufficient funds are available to allow the surviving shareholders to purchase the stake of the major shareholder.
This is important as Shareholders have important rights in a private company; rights which will directly impact the day-to-day operations of the business. Depending on the structure of the company, and the content of the shareholder’s agreement, the rights of a shareholder may pass to their beneficiaries or family in the event of an individual’s death.
However, these beneficiaries may not have the experience needed to properly run the business and may not understand the long term goals of the company; which can pose a large concern for the remaining director-shareholders. Additionally, in some cases the deceased’s beneficiaries may prefer to take the cash value of the Shareholder’s stake in the company rather than becoming involved in a business then know little about.
A major obstacle to overcoming both of these situations can be found in the availability of funds to buy-out the beneficiaries/family of the deceased shareholder – the surviving shareholders may wish to purchase the shares of the deceased, but simply may not have sufficient capital on hand to do so. In order to avoid a situation where an outside third party, hostile bidder, or even a competitor could potentially purchase the stake of the deceased shareholder (due to the beneficiaries opting to sell those shares) it is important to ensure that sufficient funds are in place to allow the company to buy-out the deceased shareholder’s shares from the beneficiaries.
Shareholder Protection Insurance Coverage
Under a Shareholder Protection Insurance policy each Shareholding Director of a company will take out coverage on their own life for the total amount of their share stake with the organization. The insurance will then offer a form of Life and Critical Illness protection which will cover:
- A pay-out in the event of a loss of a major shareholder
- Funds to purchase shares from the deceased individual’s estate
- Legal agreements to protect the company
- Tax efficiency in the event of a loss
While all businesses are governed by a Memorandum of Association and The Articles of Association, it is important to be explicit in regards to how the company will deal with the loss of a major director shareholder (whether through death, illness or disablement). The business shareholders should create an agreement which illustrates how shares will be treated following the death, disablement, or long-term illness of a key shareholder – this agreement will enable the company to understand the proper mechanism of the Shareholder Protection Insurance policy, and will ensure that the business is able to function secure in the knowledge that no additional disruptions will occur following the loss of a vital individual.
For coverage of the death, disablement, or long term illness of an employee who is not a shareholder of the company, please see Key Man Life Insurance.
Free Shareholder Protection Insurance Consultation
If you would like to arrange a free no-risk no-obligation consultation to discuss Shareholder Protection Insurance for your company, simply Contact Us to arrange a meeting with an expert CCW Global Insurance broker.
Additional information about the extensive services CCW Global offers to business and enterprise clients can be found by clicking About Us.
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