Business Continuation

What do you want to happen with your business in the event of death or disability – either yours or a co-partner’s? How will your retirement affect your company’s future? Do you want the business to remain in the family?

A solid business continuation plan can help answer your business continuation and succession needs with a custom-tailored plan designed to protect years of financial investment in your business, and ensure your family is well taken care of.

A financial professional can help you with products used to fund different business continuation strategies, which include the following.

Buy-sell agreements
Buy-sell agreements can offer a smart strategy. This is a legal contract that establishes a buyer, the price or pricing mechanism, and the events that will prompt the sale – death, disability, retirement, etc.

There are several types of Buy-Sell agreements: Cross-Purchase, Trusteed and Wait and See. The type you choose depends on who you want your successor to be – a family member, a key executive within the company or an as-yet-unknown person or entity.

It is best that a buy-sell agreement be fully funded. Life insurance is often an excellent instrument for this purpose, as it creates a lump sum of cash to fund the agreement. Here’s how it works:

Once the value of your business is determined, the company or individual co-owners purchase policies on the lives of each co-owner, not on themselves. If one owner dies, the company or co-owners receive the death benefits – which can be designated for surviving family members as payment for the deceased’s interest in the company. A financial professional can provide guidance on the methods and ramifications of life insurance funding.

If you wish the business to remain in the family, a will can also accomplish this. A will lets you retain ownership until your demise, after which it is transferred to a family member of members. However, your business interest may be included in your estate and, therefore, subject to estate taxes. Consulting with your tax attorney is advisable.

Setting up a trust may be prudent when you wish to start transferring ownership during your life. A Trust can be structured so that you keep a controlling interest until you are ready to step down from the business. Trusts can include lifetime gifts of interest in your business, an outright sale of your interest, a family limited partnership, or any combination of the above. Federal and/or state gift taxes may apply, so, again, consult your tax attorney.

Stock Redemption Plan
Stock redemptions also can fund a business continuation and succession plan. Your financial professional can elaborate on the various strategies you can use.