What is the purpose of shareholder protection?
This type of protection planning is effectively business succession planning as it:
Protects the shareholders
Ensures that the affected shareholder (on death or suffering a serious illness) receives a fair payment for their shares, and the remaining shareholders have the option and funds to purchase the shares. This avoids the affected shareholder’s family having to be involved in the future running of the business.
Protects the shareholders families
They benefit from the market value of the shareholding or a specified cash payment rather than be at the mercy of the remaining shareholder’s offer. Furthermore, they do not need to be involved in a business that they may have no experience of running.
Protects the employees
Ensures continuality of the business with the remaining owners and management structure. No need to raise debt and put extra strain on the business and avoids the need for the business to be sold, whereby jobs could be at risk.
Protects the business
Means that the business does not need to be sold on the market to competitors, or when the business is vulnerable in terms of negotiation for a low value, or for asset stripping purposes.