Shareholder Succession - Case Study
Background
Small but growing company with three working shareholders. We advised the company on:
Shareholder Succession including Current Accounts;
Key Person to cover the disruption of the loss of a shareholder;
Disability Income so that shareholders knew income would continue after an agreed period but the company would not have to fund it.
This was documented in an Agreement so there would be a predictable and certain outcome.
This had been put in place with only two shareholders and continued when another bought in. One shareholder resigned and new shareholder “Trevor” bought into the company.
Process
Mainstay prepared an amended Agreement and explanatory report and discussed in detail with Trevor.
He and his partner were very reluctant, as for various reasons they felt that he did not need insurance. He was relatively young and fit and financially secure.
We pointed out that this was part of the shareholding arrangement and that this provided protection for all parties, not just himself.
After a number of discussions, and the fact that it was not an optional matter because of the potential effect on all shareholders, he proceeded with the Shareholder Succession and Key Person cover.
All of the Agreements were signed by the appropriate parties such as Trustees of Family Trusts, and the insurance policies were assigned to the relevant parties, including an Independent Trustee for the Shareholder Succession.
The Event
Less than a year later, Trevor was diagnosed with Cancer which would probably be terminal.
A claim was made under the Trauma section.
A payment was made to the Independent Trustee for his shareholding and current account. This pre-agreed amount under the Shareholder Succession Agreement was significantly in excess of the market value. The Independent Trustee coordinated the payments and transfer of ownership.
Payment was made to the company for the Key Person cover.
In the initial meetings after the event, his partner advised they felt the Company should make further payments.
The signed Agreements meant that all issues were resolved within a short period and the insurance policies meant that all parties received the pre-agreed substantial sums.
