Protecting the business with co-director insurance.
Co-Director Insurance
Co-Director Insurance is an alternative way of arranging Partnership Insurance for shareholders of a company where to the company carries the burden of the premium payments, rather than the shareholders personally.
A key aspect of the arrangement is that on the death of a shareholder, it is the company which buys back the shares of a deceased shareholder, not the surviving shareholders.
An outline of the arrangement is:
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The company enters a Contingent Purchase Contract with each shareholding, so that in the event of their death, the company would have the option which it can exercise within a limited period of death, to compel the deceased’s next of kin to sell their shares back to the company at a fair open market value. Likewise the deceased’s next of kin would also have an option to compel the company to purchase the shares from them. In this way the purchase/sale of the deceased’s shares can be triggered by either the company or the deceased’s next of kin after death.
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The company effects a life assurance policy on the life of each shareholder covered by such an agreement, to provide funds on death to enable the company to complete the buy back of shares. The premiums are paid by the company. As the policy is owned by the company, the payment of the premiums is not a BIK for Income Tax purposed for the shareholder covered by such a policy.
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In the event of death of a shareholder covered by such a Contingent Purchase Contract, the company would use the proceeds of the policy on his life to buy back his shares on death and cancel them. The surviving shareholders would therefore retain full ownership of the company as the deceased’s shareholding would then be cancelled.
It should be noted that this is a complex arrangement.
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