If a co-owner died or fell seriously ill tomorrow, who would end up owning their share of the business - and could the rest of you afford to buy it? Shareholder protection answers both questions in advance. This guide covers the agreement, the cover that funds it and how the two fit together.
Mostly, co-owners who aren't family. If you and your spouse own the business between you, the shares would usually pass to the survivor anyway. If you own it with a business partner, they don't: their shares go to their family under their will, and yours to yours.
It is easy to get wrong with good intentions. Leaving your shares to your business partner in your will looks generous, but a partner who isn't a relative can inherit very little of their value tax-free. An agreement, funded by insurance, does the same job properly.
At Eolas Money this comes up as part of Eolas Business, where Jim Stapleton looks at the company, you as its owner and your family together, alongside your solicitor and accountant.
How Eolas Business worksFrom the agreement itself to the money that funds it, these are the parts of shareholder protection and how they fit together.
Also called a double-option agreement, this is the legal backbone of shareholder protection. It gives the surviving owners the option to buy a deceased co-owner's shares, and the deceased owner's family the option to sell them - so a fair, pre-agreed sale happens smoothly rather than being fought over. We work alongside your solicitor to make sure the agreement and the funding fit together.
An agreement to buy shares is only as good as the money behind it. We put life cover - and, where it fits, serious illness cover - in place on each owner, so that if the worst happens the surviving owners actually have the funds to buy the shares rather than having to find the cash from the business or their own pockets.
A buyout needs a value everyone can stand behind. We help you agree a sensible basis for valuing the shares - and revisit it as the business grows - so the cover you hold keeps pace with what the company is actually worth. Getting this right up front avoids a painful negotiation at the worst possible time.
Protection isn't only about death. A co-owner who suffers a serious illness may be unable to return to the business, and may need to realise the value of their shares. Serious illness cover can fund that outcome too - giving both the unwell owner and those carrying on the business a clear, funded route forward.
Without protection, a deceased owner's shares typically pass to their family - who may have no interest in, or experience of, running the business, yet suddenly hold a say in it. A funded cross-option agreement keeps control with the surviving owners while making sure the family receives fair value in cash. Everyone gets what they actually need.
Shareholder protection sits inside the wider question of how ownership eventually passes on - to co-owners, family or a buyer. We help you think through succession as part of your overall plan, and coordinate with your accountant and solicitor so the tax, the legal agreement and the funding all point in the same direction.
The questions co-owners bring us most often. If yours isn't here, it's exactly the kind of thing to raise on a free call.
All frequently asked questionsIt's a legal agreement between co-owners that deals with what happens to a shareholder's shares if they die or, in some versions, become seriously ill. It gives the surviving owners the option to buy the shares and the deceased owner's estate the option to sell them - hence 'double option'. Because either side can trigger the sale, a fair, pre-agreed transaction happens without either party being forced or left stranded. The agreement is drafted by your solicitor; we make sure it's properly funded. This is general information, not legal advice - your solicitor should draft the agreement itself.
Typically through life cover - and, where appropriate, serious illness cover - arranged on each owner, sized to their share of the business. If an owner dies, the policy pays out and gives the surviving owners the funds to buy the shares under the cross-option agreement, rather than having to borrow or drain the company. We arrange and structure that cover so it lines up with the agreement.
Without a funded agreement in place, a deceased owner's shares usually pass under their will to their family. That can leave the surviving owners running a business alongside people who never chose to be involved - and with no ready cash to buy them out. A funded cross-option agreement avoids that: control stays with the surviving owners, and the family receives fair value in cash instead of a shareholding they may not want.
You and your co-owners agree a reasonable basis for valuing the shares - often with input from your accountant - and we make sure the cover reflects it. Because a company's value changes over time, we revisit the figure at review so the protection keeps pace with the business. Agreeing the approach up front avoids a difficult valuation argument at the very moment nobody wants one.
There can be - the way the agreement and the policies are set up can affect the tax treatment for the business, the owners and their families, and it's an area where the detail matters. We keep this high-level and coordinate with your accountant and solicitor so the legal, tax and funding sides all fit together. Please treat this as general information and take professional tax and legal advice on your own circumstances.
No. Eolas Money is independent and fee-based. We're not owned by, or tied to, any insurance or investment company, so our advice is about what fits your business and your co-owners - not about selling a particular product. You'll always know what you're paying us and why.
A note on scope. Eolas Money advises on the financial planning and funding side of shareholder protection - the life and serious illness cover that sits behind an agreement. The cross-option agreement itself, and the tax treatment of your particular arrangement, are matters for your solicitor and accountant. We'd always recommend taking legal and tax advice alongside ours, and we're happy to coordinate with your professional advisors so everything fits together.
Shareholder protection is one piece of a plan for the business and the people who own it. Book a 45-minute call with Jim and start with the whole picture - what needs an agreement, and what funds it, comes out of that.
