Shareholder protection is a life assurance plan that would enable the surviving shareholders to purchase the shares from the deceased shareholder’s estate.
This would look to eliminate possible financial hardship for the deceased’s family – there being no ready market for the shares (especially if the deceased held a minority holding) or restrictions laid down in the transferability of the shares in the company’s Memorandum and Articles of Association. The surviving shareholders find themselves sharing control of their business with an outsider who may know nothing about the business.
The type of plan and length of term will vary according to the company. Term assurance could be used to protect shareholders against death before retirement.