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Business Protection

corporate co-director insurance

You can remain in control even when the unexpected strikes.

Introduction On death the shares of a deceased director form part of their estate. Those who inherit the shares may not want to get involved in the business or conversely the surviving shareholders may not want the next of kin to come into the business. The most feasible option is to sell shares back to the surviving shareholders. This would require the shareholders to produce a substantial lump sum. The solution is business protection - an arrangement can be put in place whereby on the death of a shareholder, funds become available to buy shares back from the next of kin.

It won’t happen to our company The odds of one shareholder dying or becoming seriously ill before retirement are probably higher than you think. Age


2 shareholders

3 shareholders

















(Odds of one dying before age 65) Source: mortality tables (AM92) published by the Institute of Actuaries (UK)


Ask yourself How would your business survive if one of the business owners became seriously ill or died? If your business partner died what would happen to their share of the business? How would you feel about a shareholder’s family joining your business if he/she died suddenly? If you died what would happen to your share of the business? Are your spouse or children in a position to take your place in the business? How will your family survive financially?

Implications if business protection is not put in place Surviving Shareholders

Next of Kin

Loss of control

An illiquid asset

If the deceased owned more than 50% of the company the other shareholders would now find themselves having to work with a new controlling shareholder, possibly the deceased’s spouse or one of his/her children.

If the shares are not sold, the next of kin may be left holding a ‘paper asset’ producing little or no income. The position could be even more serious if the shares also give rise to an immediate inheritance tax liability for dependants.

There could be disagreements about how the business should be run, particularly if the new shareholder had no experience of the business.

No ready market for shares

Refusal to sell The ideal outcome for the surviving shareholders may be to buy back the deceased’s shareholding from his/her next of kin. But what happens if they refuse to sell?

Lack of liquid capital Even if the deceased’s next of kin are willing to sell the surviving shareholders simply may not have sufficient liquid capital to buy the shares from them. The surviving shareholders could borrow the necessary funds but they would then be faced with the burden of loan repayments for years to come.

Shares pass to outside party If the deceased’s next of kin want to sell and the other shareholders are financially unable to buy then the deceased’s next of kin may have to sell the shares to an outside third party, possibly a competitor or someone totally inexperienced in the business.


The company’s Articles of Association may give the other shareholders the right to block the sale of the shares to any outside party. The next of kin could therefore be forced into a ‘fire sale’ of the shares to the other shareholders at a low price in the absence of any other realistic offer for the shares.

We have a solution to suit your type of business

How it works With Corporate Co-Director Insurance, the company enters into a legal agreement with each of its shareholders to buy back shares from their personal representatives in the event of death. The company takes out a life assurance policy on each shareholder, to provide funds to enable the company to fulfil its obligation under the agreement. In the event of death, the proceeds of the life assurance policy are payable to the company to be used to buy back shares from the deceased’s next of kin. The major advantage of the “Corporate” arrangement is that the cost is borne totally by the companywith no benefit-in-kind (BIK) implications for the individual shareholders. This expense for the company is not tax deductible.

Legal Agreement Contingency purchase agreement - is a legal agreement put in place between shareholders and the company, giving the company an option to buy the shares back from the deceased’s next of kin and the next of kin an option to sell the shares to the remaining shareholders. If both parties mutually agree not to exercise the option, the deceased shareholders’ successors retain shareholding and come into the business.

Professional Advice The complexity of the corporate share purchase arrangement means it is a method of share protection insurance that should not be considered without the assistance of legal and taxation advisors. This is because it needs to comply with Company and Revenue Law.


Navigation Wealth can help keep your business on course

Tax Position Company

Next of Kin

The life assurance policies are issued to the company who pay the premiums.

Shares passing to a legal spouse are exempt from Capital Acquisitions Tax (CAT/Inheritance Tax) but shares passing to any other individual will be subject to normal CAT rules. The disposal of the shares by the next of kin shortly after a shareholder dying will result in the loss of any business property relief (as one of the conditions attaching to that relief is that shares must be held for a period of six years – the buyback will break that condition).

Under current legislation and revenue practise it is our understanding that the premiums would not be tax deductible for Corporation Tax purposes while the proceeds are likely to be exempt from Corporation Tax. If the policy is part of a corporate share buy back arrangement then the proceeds are likely to be treated as a Capital receipt for the company. The proceeds of a company owned policy, paid out on death or disablement, are exempt from Capital Gains Tax. So no tax liability arises for the company on the proceeds of the life assurance policy

The sale of shares back to the Company from which they were issued by next of kin, after a shareholder dying, would normally give rise to income tax implications i.e. the full value of the payout to the next of kin would be taxed as though it were income. However if certain conditions are satisfied the sale of shares back to the Company will generate a liability to Capital Gains Tax. Capital Gains Tax would only arise for the next of kin in respect of any increase in the value of the shares from the date of death to the date of disposal. It is unlikely there would be any such increase in share value in a private company, which has just suffered the death of a shareholder.



Navigation Wealth Limited Unit 1G/1F, North Valley Business Centre, Old Mallow Road, Cork T: 021 490 9104

Navigation Wealth Ltd trading as Navigation Wealth is regulated by the Central Bank of Ireland. Company No. 394662. Registered Office: Cuil Greine House, Ballincollig, Co. Cork.

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