Corporate Solutions
Business to business
Key Person Funding Protection
Business Succession Planning is essential for most businesses.
Three common components addressed in business plans are business ownership, how debt will be dealt with and how your business will manage the death or serious illness of a key member. This article examines some of the planning and insurance solutions that may form your Business Succession Plan.
Buy-Sell Agreements
A Will for Your Business
A buy-sell agreement is created when business owners negotiate and agree what they will do with their respective interests in the business if an owner dies, is seriously ill or injured or simply wishes to retire or exit the business. It is just like putting a will in place for your business.
As the name suggests, buy-sell agreements often include mechanisms for the sale of an owner’s share in a business if they die or are incapacitated. Not only will this detail who has first rights to purchase the business from their dependants - and at what price - it can also include funding mechanisms. In most cases, the funding mechanism used is personal insurance. This might include life insurance, total and permanent disability insurance and income protection insurance.
The structure of how these insurance policies are owned and paid for is extremely important. Getting the structure right can save you, your dependants and your business partners a great deal in tax. Having the correct set-up may also help with getting faster insurance payments and easier distribution of your estate.
Legal agreements should always be put in place for buysell agreements to ensure everybody is aware of their rights and obligations. With the right buy-sell agreement in place, multiple benefits can be achieved:
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Certainty about what will happen and when;
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Stability for your business, owners, employees, even your suppliers and creditors.;
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An agreed sale price;
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No need for additional borrowings for a business buy out; and
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The value of your business is preserved.
