Company buyback method
Whereby the company repurchases the shares from the deceased shareholders. The company insures each shareholder and benefits from the claim proceeds on death or diagnosis of a serious illness. Once the company has repurchased the shares it then cancels them thereby increasing the value of the remaining shareholder’s shares proportionately. This is the most complex method and certain conditions must be adhered to.
Life of another method
Whereby each shareholder takes out a policy on the other shareholder so that they receive the benefit on the death or serious illness of the insured person. This gives the remaining shareholder the funds to purchase the deceased or serious ill shareholder’s shares. Due to the nature of this type of arrangement then it only really works for a two shareholder or partner business, and becomes more complex beyond this number of shareholders.
Own policy written in flexible business trust method
For the benefit of surviving shareholders, and which offers flexibility on the number of, and without specificing shareholders, both now and in the future.
Each of these routes has different advantages and disadvantages, including minimum time that shares have been owned, complexity, tax reliefs and tax costs, and so it is essential that independent financial advice is sort to advise what method suits you and your business now and in the future.