AFTER YOU EXIT, WHO WILL BE RESPONSIBLE FOR THE CONTINUITY OF YOUR BUSINESS?
There may be a false impression that family transfers are simple in comparison to arm’s length transfers, when in fact they can get quite complicated. Family operated corporations often find problems in transferring the business at the right time, to the appropriate individuals, in a tax efficient manner. Business continuity becomes an important issue at the decisive point in time of who will carry on the legacy. Current business owners want to know the future direction of the company, whether or not they have remaining involvement.
Once the successors are determined, owners often find themselves overcoming issues of taxation at the time of transfer. A sale of a company (whether it be a sole proprietor, partnership or private corporation) is dealt with differently, especially when a company is being transferred amongst family members.
Life insurance and disability insurance provide the appropriate funding for those unplanned events that often force owners/shareholders of companies to perform one of two alternatives; selling or winding up. To avoid these alternatives, creating the necessary funding with the acquisition of insurance will avoid dealing with such consequences. The use of a buy/sell agreement often is appropriate if continuity of the business and offered as protection for all parties involved.
Alternatively, salary continuation plans or wage loss replacement plans, for owners and employees are considered for short-term and long-term needs. Ultimately, these plans are designed to allow salary continuation in the event of a disability or illness, for the owners, shareholders and key employees of the company.
Ownership & Buy/Sell Agreements
Ensure the business is sold for the appropriate amount and sold to the intended individuals. There are several ways to structure a buy/sell agreement, a very effective way of assuring the direction of the business if an unexpected event were to occur with an owner/partner. Buy/sell agreement is structured and implemented by a lawyer.
Key Person Insurance
What would happen to your business if your key employee or manager/operator encountered an unexpected event? There are ways to cover those individuals who are the driving factor behind your business. For situations of both death and disability, there is a potential of being protected in either situation. The business may be impacted largely with the loss of key persons; covering these key persons may be influential to the continuity of the business.