Business owners often are busy with the daily routine in their business operation, leaving little time for business succession planning. It is one of the most important things any business owners can do for their dependents & shareholders.
The first step involves incorporation of your business.
Next, determine if shareholders, sales, succession or hybrid agreement is required.
Buy sell agreement provides terms, an agreed fair market value & funding if a partner exits from the business. It transfers the shares of the deceased partner to the remaining with ease. It creates a ready market for the sales of shares and get the value out of the business when one of the business owners has to go. The fair market value of a company should be reviewed periodically in order to make it relevant.
Common Trigger Events:
Fund creation with life insurance can provide immediate cash for ‘early buy out’ upon some of the trigger events like death or disability of any shareholder. Sum assured of life insurance policies are purchased based on a pre-determined valuation of the business. This provide guaranteed & instant lump sum of money for the deceased’s beneficiaries whom might not be interested or capable to work in the business. The company needs not be concern of raising fund for the deceased’s family. These policies are then assigned to the trustee to distribute the proceed to the deceased’s family.
Trust creation A trust account acts as custodian and is used to facilitate the holding of insurance proceeds paid to the deceased’s family and transferring of shares to the remaining partners.
Read related article: Succession Planning is key to longevity
Contact us for details