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Should your business lose an owner/partner to any one of these 3 situations, the remaining owners/partners must decide how the business will continue. Generally, you have four options:
A key component of an integrated financial plan for the succession of a business would be the inclusion of a formal Buy/Sell Agreement. These agreements cover the terms of ownership and operation of the business. It usually deals with the death, disability critical illness and retirement of one of the owners, as well as disagreements that could arise about running the business resulting in an owner wanting out of the business.
The Buy/Sell Agreement should include a formula or process for valuing the business to simplify the buy-out of an owner/partner in the event of death, disability or critical illness and will generally deal with:
Proper funding must be in place to ensure that your agreement is viable. After all, without funding in place, agreements can fall apart because the remaining owners, obligated under the terms of the agreement to purchase the departing owner’s/partner’s shares, may not be in a financial position to do so. The options available for funding would be:
You can purchase Life Insurance, Disability Insurance and Critical Illness Insurance to provide the funds needed at the time they are needed! Often, the best and least expensive alternative for buy/sell funding is insurance!
There are several advantages to having your Buy/Sell Agreement funded with Insurance Policies, some of which are listed below:
It is important to note that there are numerous possible ways to structure both the Buy/Sell Agreement and the Insurance contracts funding them. Each method has its own pros and cons, particularly when it comes to taxation, so it is imperative that all circumstances be examined by your Legal Council and Accountants in order to secure the Agreement that fits your own unique situation.
Health Risk is prepared to work with your company to assist in the process of ascertaining the appropriate Buy/Sell Agreement, or if in fact you already have one in place, to identify the insurance product solutions necessary to fund your agreement. We will endeavor to work closely with your professional team of Accountants and Lawyers to ensure that every detail is covered.
