Business Insurance
| Small Busniess Owner Needs Checklist | Key Person Insurance | Buy-Sell Agreements | Employee Benefits |
All businesses, if their successful, go through many phases and changes.
From their start-up phase through their becoming an established business, to their transition to new ownership (due to sale, retirement or death) there are issues that must be identified and addressed to ensure the greatest chance for success.
A few of the many tools that can be helpful are a buy-sell agreement and an estate freeze.
A Buy-Sell Agreement, between shareholders of a closely held, private corporation provides for the purchase and sale of the shareholders’ interests in the company.
The agreement establishes what will happen in the event of a shareholder’s death and enables the surviving shareholders to purchase the deceased’s shares in the company. Often life insurance is acquired on the lives of the shareholders to ensure survivors have enough funds to buy the deceased’s shares from the estate. The life insurance policies are either owned by the corporation or by the shareholders themselves. Each ownership method has its own taxation consequences.
An Estate freeze
How it works:
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Upon death, the amount of any capital gains realized and taxes payable on such gains, would be more predictable
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Life insurance can work as a means to fund such tax liability
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As a result, beneficiaries of the estate don’t have to liquidate assets to satisfy debt at a time when market values may be down.
How life insurance can work with an estate freeze:
The corporation purchased a life insurance policy
Upon death…
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The company would receive the death benefit and the capital dividend account (CDA) would increase
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The company would redeem the preferred shares
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The redemption would result in a deemed dividend and a capital loss
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An election will be made to have the deemed dividend on the redemption paid as a tax-free capital dividend from the CDA of the corporation, thereby avoiding double taxation
Corporately owned insurance can:
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Fuel a new business
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Address common business concerns at the development stage of the business life cycle
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Cash fow
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Obtaining fnancing
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Debt protection
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Key person protection
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Reinvesting capital to help the business grow
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Buy-sell agreements
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Employee benefts
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Assist in the transfer of a mature business to new ownership
Typical considerations are:
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Succession planning
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Estate freeze
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Retirement planning
