In the event of the Death, Disablement and in some cases the Critical Illness of a shareholder and/or partner within the business, this cover assists with ensuring the continuation of the business in line with the current shareholders/partners wishes.
This cover, when combined with a formal Buy Sell Agreement, provides either full or partial funding and a pre-determined process (and method of valuation) for the remaining shareholders/partners to purchase the departing shareholder/partner’s share of the business.
A Buy Sell Agreement is a legal document that is constructed following a consultation with a solicitor.
Your Buy Sell Agreement may contain:
- Your agreed valuation of the business and how this valuation was calculated
- Details of the ownership of the policy(s) and also details of how the proceeds are to be distributed
- The circumstances around the distribution of proceeds and also the transfer of the shares of the affected shareholder
The Buy Sell Agreement will cover more than merely the details around the Buy Sell Insurance. It is more than this and acts not just as a Will for your business but also as a formal exit strategy document which all parties should be in agreement with.
Some key areas that require consideration when formulating a Business Succession Plan are Policy Ownership and Premium Payments, as this will determine the need to consider:
- Capital Gains Tax (CGT)
- Fringe Benefits Tax (FBT)
What are the options in the event of the death or permanent disablement of a shareholder:
- Heirs of the deceased could take control of the deceased’s share
- Heirs of the deceased could sell to an ‘outsider’
- Remaining partners or shareholders could sell their interest to heirs of the deceased
- Remaining partners or shareholders could buy the deceased’s interest from heirs of the deceased