Business Succession

Business Succession

Ensure the Continuation of Your Business With a Business Succession Plan

A business succession plan can help with the orderly transition of ownership and management of a business in the event of the retirement, death or disability of one of the partners. Without proper planning, these situations can lead to an interruption or forced sale of the business.

Business succession planning can ensure that the remaining partners have the funds necessary to buy the individual’s business interest, or that a potential buyer with the proper expertise is lined up ahead of time.

The plan can set the price of each individual’s interest in the business. It can ensure that the money will be available to transfer ownership of this interest and to potentially provide the deceased partner’s family with the funds they need.

Allmerits can help you ensure the continuity of your business. We offer these two popular plans to help with business succession:

The death or long-term disability of a business owner may lead to internal turmoil, customer erosion and disruption in revenue flow. A buy/sell agreement funded with Allmerits may help prevent these problems from arising and potentially damaging your business.

Most business owners implement one of two plans – the cross-purchase plan or the entity purchase or stock redemption plan.

  • Cross-purchase plan– Each business owner purchases a life insurance policy on each of the other owners. When an owner dies, the surviving owners use the death benefit to purchase the deceased owner’s share of the business.
  • Entity purchase or stock redemption plan– In an entity redemption plan between owner-employees, each owner enters into an agreement with the business for the sale of their respective interests to the business.

As a part of this agreement, the business will purchase separate life insurance contracts on the lives of the owners. The business will pay the premiums and will be the owner and beneficiary. When an owner-employee dies, his or her share of the company will pass to the heirs of his or her estate. The business may use the proceeds from the policy to purchase the interest from the estate.

This type of plan is not limited in by the number of employees you want to insure.

Potential business benefits of a buy/sell agreement

A buy/sell agreement gives employers peace of mind knowing that their business is in capable hands should they no longer be able or want to manage it. It also:

  • Provides money to create a fair market value exchange
  • Promotes equitable and orderly transfer of wealth, ownership and management
  • May offer tax advantages
  • Guarantees heirs a buyer for assets they may not know how to manage
  • Provides heirs cash to pay estate debt, expenses and taxes

Potential benefits for business partners and employees

For employees, a buy/sell agreement provides a way to purchase a business they have a vested interest in but may not have the capital for. It also:

  • Assures remaining owners that the deceased’s share of the business will not pass on to someone unsuitable
  • Assures continuity for customers, creditors and employees

Replacing a key person takes time and money − and could cost the business valuable clients during the transition. Key person life insurance offers a death benefit that can help cover financial losses that occur at the death of a key person. This helps assure continuity of the business for employees, customers and creditors.

Taking out a key person policy on your top employees also affirms their value to your business, strengthening the relationship.

Other features of key person insurance

  • The death benefit can be used to recruit and develop a replacement for the previous key employee
  • Coverage is a business asset that enhances your company’s creditworthiness for commercial borrowing
  • The policy’s cash value may be available to your business through a withdrawal or loan if needed
  • The business pays the premiums, and they are non-deductible