Why shareholder protection matters for SMEs – and how it safeguards your business

For founders and owners, running a business is more than just a job – it’s your vision, your legacy, and your future. And for many SMEs, business partners are much more than co-owners; they are trusted colleagues, and in a lot of cases, trusted friends. But what would happen if one of those key people was to become critically ill or pass away unexpectedly? Without a clear plan, ownership could transfer to unfamiliar hands, creating instability and potentially threatening the future of the business.

This is precisely where shareholder protection becomes essential: not just as a safety net, but as a fundamental part of succession planning.

Shareholder protection is a type of business protection insurance, designed to safeguard a company when a shareholder dies or becomes seriously ill.

Typically, shareholders take out life (and sometimes critical illness) insurance policies, that will pay out the necessary funds to the surviving shareholders to buy back shares from the estate or family of the affected partner.

As part of these policies, the shareholders will agree a cross-option agreement that sets out how shares will be bought and sold.

To learn more about how WillU supports businesses with risk planning, visit our business protection overview.

A shareholder protection arrangement normally includes:

• A life insurance policy (with optional critical illness cover) linked to each shareholder
• A cross-option agreement enabling the surviving shareholders and the affected shareholder’s estate to buy and sell shares in a predefined, legally enforceable way
• A valuation method, agreed in advance, to determine the value of the shares
• A Business Trust, where the policy is written in trust to the business, with the other shareholders listed as the beneficiaries of the trust. This also helps to keep policy proceeds outside the shareholder’s estate and to protect the funds from any creditors and Inheritance Tax.

These structures ensure business continuity, financial fairness, and legal clarity at an extremely difficult time for all parties.

Costs vary depending on the following:

• Age and health of shareholders
• Value of the business and shareholding
• Whether critical illness cover is included
• Length and type of policy
• Insurer
• Whether premiums need to be “equalised” between shareholders

Premiums can range from tens to hundreds of pounds per month. The investment is relatively small when compared with the potential financial, operational and emotional cost of losing a key shareholder without a plan.

At WillU, we search the market to get you the most suitable and competitive cover. You can learn more about how we compare insurers and build bespoke cover on our business protection page.

Shareholder protection is critical for any company with multiple owners or partners. For SMEs in particular, shareholder protection offers vital benefits:

1. Business continuity and control

Without protection, shares could pass to a family member or third party. A structured agreement keeps control with the people who understand the business best.

2. Financial security for families

The payout ensures the affected shareholder’s family receives fair financial value – without having to step into the business.

3. Tax efficiency and legal clarity

When paired with trusts and correct legal agreements, shareholder protection can help maintain access to Business Property Relief (BPR) while avoiding probate delays.

4. Fewer disputes and delays

With a pre-agreed valuation mechanism, there’s no argument over the value of shares during an already difficult period.

5. Greater confidence from staff, lenders and customers

A strong continuity plan demonstrates professionalism and resilience — essential for SMEs building trust with employees, investors and clients.

Without shareholder protection, SMEs often face:

1. Unplanned ownership changes

Beneficiaries of a business owners’ estate may suddenly own shares they’re ill-equipped to manage – or may sell to someone you never intended to be involved.

Would their family want to step in and run the business, or would they prefer the financial value instead?

2. Expensive or unachievable buy-outs

Surviving shareholders may be unable to fund a buy-out, forcing the business to take on debt or lose control.

3. Conflicts over valuation

Without a valuation method, disputes can arise and drag on for months.

4. Serious operational instability

Uncertainty about leadership or ownership can unsettle staff, customers and suppliers.

5. Legal and tax complexity

Poorly structured arrangements can lead to inheritance tax issues or lengthy probate delays.

At WillU, we specialise in helping business owners build long-term protection strategies that safeguard their business and their families. When you work with us, you get:

✔ Tailored advice based on your business and shareholder structure

We take time to understand your goals, risks and shareholding arrangements.

✔ Market-wide access to insurers

As a broker, we compare multiple providers to find the most suitable cover.

✔ Support with cross-option agreements and trusts

We work with your accountants and solicitors to ensure the legal framework is set up correctly – and tax efficiently.

✔ Regular reviews as your business evolves

As your company grows, valuations and protection requirements change. We keep your arrangements up to date.

You can explore more of our business protection services here – WillU business protection

From beginning to end, the process is straightforward:

1. Book a consultation with WillU’s business protection specialists
2. Agree a valuation with accountants and legal advisers
3. Set up a cross-option agreement
4. Choose and implement the policy
5. Review regularly as your business grows

Shareholder protection offers stability, fairness and clarity – qualities every SME needs to thrive. It protects your business’s future, supports families at a difficult time, and ensures continuity of control when it matters most.

At WillU, we’re here to help you build a protection strategy that matches your ambition – and protects your legacy.

To take the first step, speak to us today, contact the WillU team.