In addition to the personal tragedy for all concerned, the death of a Co-Director in a business causes major problems for the surviving directors, and the deceased’s next of kin.

The surviving directors
The other directors face a number of potential difficulties:
• The deceased’s shares may pass through his estate to a new owner, possibly the deceased’s spouse or one of his children. The new owner may not have any detailed experience of the business.
• If the deceased director owned more than 50% of the company the surviving directors will have to work with a new majority shareholder, possibly the deceased’s spouse. There could be disagreements about how the business should be run.
• The ideal solution, from the other directors’ point ofview, might be to buy back the deceased’s shares.
But where will they get the liquid capital to do this?
And what if the next of kin refuse to sell?
The next of kin
The next of kin may also find themselves in a difficult position. The company’s Articles of Association may give the other shareholders the right to block the sale of the shares to an outside party. Without any way to sell the shares on the open market at their true value, the deceased directors’ next of kin could be forced into a ”fire sale” of the shares to the other directors, at a low price.

The deceased’s salary will cease on death. If the shares are not sold, the next of kin may be left holding a paper asset, particularly if they now own a minority holding in the company, producing little or no income.

Specified Illness
The onset of a sudden serious illness of a director could give rise to a situation similar to that arising on death:
• The ill director may want to sell his shares and realise a lump sum in order that he may retire from the business.
• The other directors may not have the necessary capital available at that time to buy back the shares.

Providing a solution
Co-Director’s Insurance is a means of solving the financial problems that can arise following the death of one of the directors, by:
• Creating a Buy/Sell Agreement, under which it is agreed that the shares of a deceased director will be bought back on death at a fair open market price, and
• Arranging life assurance cover, to provide the necessary funds to enable the surviving directors
to complete the purchase.

In addition to the personal tragedy for all concerned, the death of a Co-Director in a business causes major problems for the surviving directors, and the deceased’s next of kin.

The Benefits
The Co-Directors Insurance arrangement brings benefits for both sides, in the event of the death of a director:
• The next of kin are not locked into the company, and can rapidly realise their shares for a substantial capital lump sum, while
• The surviving directors retain full control over the company by buying back their deceased colleague’s shares.

The Buy/Sell Agreement
As the name implies, a Buy/Sell Agreement is a legal agreement between the directors which provides that on the death of one of them:
• The surviving directors are obliged to buy the deceased’s shares at a fair open market value, and
• The next of kin’s personal representatives are obliged to sell the shares to the surviving directors.

Arranging the Life Cover
To ensure that the surviving directors are in a position to complete the purchase of the shares on death, the Buy/Sell agreement also provides that each director agrees to effect and maintain a life assurance policy on his own life, for a sum assured equivalent to the estimated full market value of their shares. Each policy is arranged under Trust, so that on death the proceeds are payable directly to trustees