You have probably insured your buildings, IT equipment, company cars, stock, and other materials. But what would happen to the shares in your business if you were to pass away? Does the company have the funds to be able to buy shares from your family who have inherited them?
A Private Limited company has two Directors who have equal shares in the business. The Directors want to protect themselves and their families against any financial loss on death.
If either Director were to die suddenly, their shares in the business would be passed onto their family, who then may either become active in the business or try and sell them to a third party. The remaining Director may not want to work with the former director’s family or like the idea of a new acquirer. They would need to come up with the funds to be able to buy the shares from the family who have inherited them.
Busy Bees Benefits would arrange a life insurance policy on the life of each Director, that would pay into a business trust in the event of death. Because the surviving Director would be set up as a Trustee on the Business Trust, they would then be able to access the money to enable them to buy the shares from the family who have inherited them.
This would result in the surviving director owning 100% of the shares in the business, and the decedent’s family would have a lump sum amount of money by way of compensation for the sale of shares in the business.
A Cross Option agreement would be set up at the time of arranging the insurance policies. This would state that if either the family would like to sell their shares to the surviving Director, or the Director would like to buy the shares from the family, the other should comply.