Shareholder Protection
Secure Your Business Legacy & Maintain Control & Continuity when it matters most
Unexpected loss or illness of a shareholder can destabilise your company. Our Shareholder Protection solutions ensure your business and your people are ready—and protected—for anything.
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What is Shareholder Protection?
What is shareholder protection insurance?
It’s a tailored shareholder protection policy that provides the funds needed for remaining shareholders or the company to purchase a departing shareholder’s stake, due to death, critical illness, or incapacity.
This structured plan ensures smooth shareholder protection cover and clarity for all involved.
How shareholder protection works:
- A company-owned shareholder protection policy pays out a lump sum on a shareholder’s death or serious illness.
- Funds flow to the business or designated trust, enabling the purchase of shares from the shareholder or their estate.
- For cross-option shareholder protection, shareholders have mutual buy/sell rights, while own-life under trust shareholder protection structures use individual policies held in trust.
Do I Need Shareholder Protection?
- Shareholder protection for SMEs ensures continuity in small teams.
- Shareholder protection for startups and family businesses keeps ownership in trusted hands.
- Even limited companies benefit by avoiding forced share sales or unwanted heirs.
- If someone asks, “What happens to shares when a shareholder dies?”, the answer lies in proactive planning with the right share protection cross-option agreement.
Put simply: if you own business shares with others, you need shareholder protection UK.
Shareholder Protection Explained
- Effective for life, critical illness, or terminal illness of shareholders
- Ideal for shareholder protection for family businesses – keeps control within the family
- Tailored to shareholder protection for limited companies, with legal articles and Companies Act compliance
- Valuation of shares for shareholder protection is agreed early to avoid conflict during crises
- Optional critical illness shareholder protection safeguard ensures crisis cover before death, giving parties time to act
Why It Matters
- Without protection, a shareholder's death or illness can force:
- Unwanted heirs into ownership
- Business disruption or sale
- Family disputes over share value or timely payment
- Shareholder protection builds a market in shares, giving certainty and continuity
Benefits of Shareholder Protection
✔️Business continuity & control — prevent forced liquidation or unwelcome new owners.
✔️Financial stability — shareholders’ families receive fair value; the business buys back shares seamlessly.
✔️Transfer clarity — share value is set in advance, using a shareholder protection calculator or expert valuation.
✔️Tax efficiency — trusts and cross-option agreements help preserve Business Property Relief, reduce Inheritance Tax, and may provide tax implications shareholder protection benefits.
✔️Enhanced choice — options include critical illness shareholder protection and flexible ownership structures.
Key Considerations
- Tax implications – Evaluate ownership, policy type, and relief eligibility
- Valuation methodology – Agree how company shares are valued on exit or death
- Cross-option agreement – Define rights and timing for share purchase
- Trust mechanics – Decide whether to structure using company-owned or trust-based policies
All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs’ practice. Levels and bases of tax relief are subject to change.
Structure Choices & Policy Ownership
Company-Owned Shareholder Protection
- Owned and paid for by the company
- HMRC typically treats payouts as capital receipts (not taxable as income)
- Premiums aren’t deductible, but no P11D/BIK impact
- Minimal trust complexity
- Ideal for larger or mature companies
Own-Life Under Business Trust
- Each shareholder takes out a personal policy, held in trust
- Company may pay premiums and deduct tax, but shareholders may report as P11D
- Requires equalised premiums
- Offers flexibility and trust protection
Tax treatment and policy setup depend on your situation—our advisers guide you every step of the way.
Speak to an expertQuotes, Costs & Calculations
- Shareholder protection cost varies by age, health, share value, and business structure
- Use a shareholder protection calculator to estimate premiums
- Obtain shareholder protection quotes from trusted insurers
- Want cheap shareholder protection insurance? We search for cost-effective plans that meet your needs
- Expect shareholder protection price UK to range based on coverage amount and policy setup
Your Next Steps
- Evaluate shareholder protection calculator results
- Get tailored shareholder protection quotes
- Consult on structure—company-owned, trust-based, or cross-option
- Draft the right share protection cross-option agreement
- Review tax implications of shareholder protection
Talk to our advisers today to design a policy that secures your legacy with confidence.
Useful resources for Business Owners & Contractors
Explore more insights to help you decide.
- Read: Who’s Bob (and why does he own half my company?) — why uncontrolled share transfer can bite.
- Thinking to yourself... “It’s Too Expensive”, “My business is too small for that” or “I don’t have time to deal with this now...” Read our page on Why Business Protection Matters and why this common objections miss the mark.
- Read our blog on why Essential Business Protection for Contractors is more than a nice-to-have and how to safeguard your business, income and clients.
- Winging it” isn’t a great strategy. That’s where Business Protection policies step in to save the day! Read our blog on The Business Protection You Haven’t Thought About
- Download your FREE Broadbench Guide To Tax Savings
- Case Studies: Shareholder protection in Action
- Download: Broadbench - Employee Benefits
- Download: Broadbench - Tax and Financial Risks
Wherever you are in your journey—with an established enterprise or early-stage startup—get in touch for expert, jargon-free advice on setting up the right shareholder protection policy today.
Speak to an expertGet the facts
The secrets to securing your business
Shareholder Protection is essential but not always simple. Access the insight you need to make the right policy choices by downloading our detailed guide.
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FAQs
How is shareholder protection structured?
There are three main ways to set up shareholder protection:
- Own life plans under business trusts – Each shareholder takes out a policy on their own life, written in trust for the benefit of other shareholders.
- Life of another plans – Each shareholder owns policies on the lives of other shareholders.
- Company-owned plans – The company takes out policies on shareholders to fund the buyback of shares.
Speak to your Broadbench financial adviser to determine the best option for your business.
What is a cross-option agreement?
Also known as a double-option agreement, this gives surviving shareholders the option to buy shares from the deceased shareholder’s personal representatives.
- If either party wishes to exercise their option, the other must comply.
- The option can only be exercised after death, within a specific timeframe.
Does a cross-option agreement affect IHT business property relief?
No. If a shareholder passes away while owning shares in an unquoted trading company, 100% Business Property Relief (BPR) may apply for inheritance tax (IHT) purposes, as long as the shares were held for at least two years.
Even if the estate receives cash for shares under a cross-option agreement, BPR is preserved because:
- The option is only exercisable after death.
- There is no binding contract to sell at the time of death.
What happens if shareholders enter into a buy/sell agreement?
A buy/sell agreement would deny Business Property Relief.
- Shareholders agree that, upon the death of one, the remaining shareholders must buy their shares, and the estate must sell.
- Life insurance is taken out to fund the purchase.
Since this creates a binding contract at the time of death, HMRC treats the shares as already converted into cash, making them fully subject to IHT.
How does critical illness affect shareholder protection?
A critically ill shareholder may be unable to contribute to the business and may want to exit. Their co-shareholders will need funds to buy their shares.
- If a business trust is used, a policy with critical illness cover can be written under the trust.
- Instead of a cross-option agreement, a single-option agreement is recommended. This ensures that a critically ill shareholder is not forced to sell against their wishes.
A forced sale could trigger capital gains tax (CGT) and future IHT liabilities, as the shareholder would receive cash instead of retaining shares that may qualify for IHT Business Property Relief.
What happens if the single option is not exercised?
If a shareholder receives a critical illness payout but chooses not to sell their shares, we recommend keeping the proceeds within the trust until the succession issue is resolved.
Although the funds might be available, they were intended for share buyout purposes. Distributing them to the critically ill shareholder could lead to tax complications.
Are there disadvantages to leaving proceeds in trust?
Yes, there is a potential Pre-Owned Asset Tax (POAT) charge.
POAT is an income tax charge applied when someone benefits from an asset they previously owned. While Business Trusts used for shareholder protection fall under POAT, in most cases, the annual benefit remains below the £5,000 tax-free limit.
- The charge is 2% of the open market value of the life plan (subject to official rate changes).
- While the insured person is healthy, the market value is low, meaning no charge applies.
- If they become critically ill and the funds remain in trust, the value increases, potentially triggering POAT.
To avoid this, the settlor (original policyholder) can be removed as a beneficiary of the trust. However, this may have IHT implications, which should be reviewed with a Broadbench adviser.