Business Continuation Planning
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The small to large business owner makes more than a simple monetary investment in the successful venture: he/she also invests his/her time, energy and labor. As such, the successful business thrives with the life-blood of its owners. Your Business is probably your most valuable asset. You've spent years building it into a profitable enterprise. An unexpected death can cause severe problems. If your partner dies, you may find yourself in business with his/her heirs. If you die, your family may be working with your partners. In either case the business may not be able to replace the knowledge lost; it may cease to be profitable. If this happens, it may have to be liquidated. You can prepare for the problems which come with changes in ownership. Business Continuation Planning encompasses the BUY-SELL Agreement. This is the most overlooked business continuation tool, a tool that is so valuable to a business, that it may not survive without it. The BUY-SELL Agreement funded by Life Insurance, Trust Deed or a Sinking Fund, is designed to fit your company's structure.
Business disagreements about what happens to the business after the owner or one of the owners is gone, can result in numerous problems. This can pose an even greater challenge if there is no formal succession plan in place. A buy-sell agreement properly drafted by an attorney molded in conjunction with a insurance agent can help build an effective succession plan.
A Buy-Sell Agreement can:
* Put a formal agreement in place regarding what happens to the business should the client retire, become disabled, withdraw from the business, or die unexpectedly.
* Build trust and a sense of security among employees, customers, and suppliers.
* Give the client control over what happens to a business that he or she has worked hard to build and maintain in the event of his or her death.
* Limit family disagreements regarding the continuation of the business.
* Provide cash to the children or a third party to purchase the client’s interest in the business from his or her estate.
**In 1939 the Supreme Court set a precedent and Up-Held the insurance contract of the partnership funding agreement, to be the true intent of the deceased partner and the death benefit remained as the fair-market-value of that partner's equity.!!!
Here are some of your alternatives:
*C Corp.--This agreement guarantees a market for a deceased owner's stock and converts it into cash. The ENTITY PURCHASE, will retire those shares and indemnify your business (Funding should be reviewed semi-annually to maintain fair market value).
*S Corp.--The CROSS PURCHASE agreement: Surviving partners can assure themselves they will retain control, receive stepped-up-basis (valuation) i.e avoid capital gains tax on partners equity transfered... You can set a predetermined value for your business, keeping the IRS out of the valuation process. You can keep unwanted partners out of your business affairs (First Colony Life, Allianz Life/ Member of the Allianz Group).
*Disability Buy-Out: The Disability Buy-Out policy provides cash to assist in the purchase of a disabled partner's business interest by the remaining owners. The policy owner may be an insured's partner/co-owner or the business itself, depending on the Buy-Out arrangement. We will issue from 75%, up to 100% of the market value of the proposed insured's share of the Business. The Amount is a function of the waiting period and funding method selected (i.e. LUMP SUM or MONTHLY/DOWN PAYMENT.) Minimum issue is $20,000 of Buy-Out Amount (Guardian/Berkshire Life & Principal Financial Group).
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