If you die or become permanently disabled, what will happen to your business? For the sole owner of a new business, this may not be a concern as there is usually little left to continue when the lifeblood of the organization has gone. Still, a sole owner may wish to use corporate dollars to purchase an insurance policy that will provide a value to the business at his or her death.
The most impact, however, occurs when the business has more than one owner. If no planning has been done, owners can suddenly find themselves in business with the spouse or executors of the deceased owner, or with a permanently disabled owner who can no longer contribute skills to the business. The chances of this situation working favourably are minimal at best. To guard against this, the owners should enter into a buy/sell agreement to ensure their interests are protected.
Buy/sell agreements - provide for the transfer of ownership of the business in different circumstances death, disability, retirement or disagreement. At death or disability, for example, the remaining owners may not want to be in business with the deceased owner's heirs or the non-active disabled owner. As well, the heirs or disabled owner may prefer to receive the value of the deceased or disabled owner's share of the business in cash. In addition to covering the loss of an owner, buy/sell agreements can also provide for the transfer of ownership in other situations. If an owner retires, an agreement paves the way for business as usual. If owners have a falling out, a buy/sell agreement will enable the business to continue or be "wound up" in an orderly fashion.
Proper funding - should be in place to ensure that money is available to buy the shares of a deceased or disabled owner, should the need arise. Often, the best and least expensive alternative for buy/sell funding is life insurance.
Our firm can create an effective and efficient funding vehicle to complement your buy/sell agreement. Don't wait until it's too late. Contact us for a free consultation.