Shareholder Protection Insurance NZ

What is Shareholder Protection Insurance?

Shareholder protection insurance (also known as business succession insurance or key person buyout insurance) provides the funds needed to implement a buy-sell agreement when a shareholder dies. This ensures the remaining shareholders can purchase the deceased shareholder's shares at a fair price, while providing the deceased shareholder's estate with immediate cash for their family.

Without shareholder protection, the death of a shareholder can lead to disputes, financial hardship for the deceased's family, or even the forced sale of the business. This insurance ensures a smooth transition and protects everyone's interests.

How Does It Work?

Shareholder protection insurance typically works as follows:

• 1. Agreement: Shareholders enter into a formal buy-sell agreement (often cross-option agreement) that outlines what happens to shares if a shareholder dies.
• 2. Insurance: Each shareholder (or the company) takes out life insurance on each shareholder for the value of their shares.
• 3. Death: When a shareholder dies, the insurance payout provides the funds for the remaining shareholders to buy the deceased's shares.
• 4. Continuation: The business continues with the remaining shareholders, and the deceased's family receives fair value for the shares.

What Does It Cover?

• Lump sum for buying deceased shareholder's shares
• Business continuity and stability
• Fair value to deceased shareholder's estate
• Prevention of unwanted third-party involvement
• Legal and advisory costs for the transition

Who Needs Shareholder Protection?

Shareholder protection is essential for:

• • Companies with 2 or more shareholders
• • Family companies with multiple family member shareholders
• • Businesses where shareholders are actively involved
• • Any business with a buy-sell agreement in place
• • Companies wanting to protect against shareholder disputes

Typical Costs

Shareholder protection costs vary based ages, health, on shareholder and share values. Typical costs start from:

• • Small company ($250K share value): From $600/year
• • Medium company ($500K share value): From $1,200/year
• • Larger company ($1M+ share value): From $2,000/year