Shareholder protection insurance is a crucial financial planning tool for businesses. It ensures that if a major shareholder dies, the remaining shareholders have the funds necessary to buy out the deceased's shares, preventing business disruption.
How It Works:
Each major shareholder is insured via a life insurance policy (answer C).
If a shareholder dies, the insurance pays out a lump sum to allow the surviving shareholders to buy the deceased's shares.
This prevents shares from being passed to family members who may not be involved in the business.
Why Not Other Options?
A (Investing in shares of the company) → This does not create liquidity to buy shares on a shareholder's death.
B (Providing term assurance to employees) → This applies to employee benefits, not shareholder buyouts.
D (Articles of Association) → These govern company rules but do not provide funding to purchase shares.
???? Reference: FCA Guidelines on Business Protection, CISI Wealth & Investment Management (Business Continuity Planning).
