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Business Continuation Planning

Buy-Sell Agreement Funding

A chief concern among business owners is what will happen upon the death of one of the owners: how will it affect the business, the other owners and the deceased owner’s heirs? Surviving owners want to ensure the continuity of ownership, and avoid having a ownership fall into the hands of potentially inexperienced heirs of the deceased. In addition, they want to protect themselves and the company financially. On a personal level, owners also want to ensure that their family is financially secure and compensated fairly if something happens to them.

A buy-sell agreement can address all of these concerns. It is a contract among business owners which, upon the death of one of the owners, requires the remaining owners or the company itself to purchase the deceased’s interest in the company, according to the agreed upon terms of the contract. In addition, the deceased’s heirs are required to comply by selling their inherited interest at the previously agreed upon price.

Benefits of a Buy-Sell Agreement
  • Establishes a valuation of a deceased owner’s interest in the business for estate tax purposes
  • Establishes a mutually agreeable price and terms, to reduce future potential litigation and friction
  • Helps facilitate a smooth transition of management
  • Ensures the family of the deceased owner receives cash instead of unmarketable stock.

Key Person Disability Insurance

Business owners and key players in a company care deeply about the well-being of employees and the stability of the business. When a critical employee becomes disabled, day-to-day business can become stressful for workers and managers alike.

Key person disability insurance is designed to provide companies with financial stability in a time of stress due to the sudden loss of an important employee. Policies can be taken out for any employee or manager the company deems essential. If a disability arises or an injury occurs, an insured key person can work towards recovery without having to worry about the potentially devastating impact of his or her absence.

Key person disability policies are beneficial because of the flexibility they offer. The money the company receives in the event of disability of a key employee may be used as necessary, whether that is hiring a temporary replacement for the staff member or simply covering for lost revenue as a result of the absence.

Who Buys Key Person Coverage?

A company may take out key person coverage on anyone whose absence could profoundly impact its operations. Of course, the insured must consent to the coverage before the company may purchase a policy. If an employee falls into any of the descriptions listed below, a company may very well want to seek key person coverage, especially if it is a small business where individuals shoulder many unique responsibilities. Key person coverage is crucial for:

  • Employees who would be extremely difficult, time-consuming or expensive to replace (ex: central decision makers, chief executives, vital sales managers or employees whose ideas have critical commercial impact)
  • Highly skilled employees with unique training
  • Employees with exclusive ties to key clients, like sports stars
  • Employees who are company leaders and have irreplaceable knowledge
  • Small business owners who would face financial hardship in losing a key staff member, employee or client

Key Person Life Insurance

Do you employ at least one individual who is essential to your company’s success? Perhaps it’s you, a partner or someone with unique expertise that is unmatched throughout the rest of the company. If this person’s exit from the company is planned, such as retirement or voluntary termination, then the loss can be prepared for and the company can take the necessary precautions to minimize the effect. However, if the departure is unplanned due to an unexpected death, disabling accident or a sudden quitting, then your company will be exposed to financial risks.

Every company employs individuals who are vital to its success and should give consideration to key person life insurance, especially if the business is small. This insurance solution can protect an organization’s solvency in the event it loses one of its key members or investors without warning.

Investment Advisory Services offered through O.N. Investment Management Company. Securities offered through the O.N. Equity Sales Company. Member FINRA/SIPC. One Financial Way, Cincinnati, Ohio 45242. 513/794-6794. HollandStivers & Associates, LLC is independent of the O.N. Equity Sales Company. Our representatives are licensed to sell health and life insurance in Alabama, Illinois, Kentucky, Missouri, Ohio, Tennessee, and Texas. Our representatives are licensed to sell securities in Illinois, Indiana, Kentucky, Missouri, Mississippi, North Carolina, and Tennessee. Early withdrawals may be subject to surrender charges (contingent deferred sales charges.) Withdrawals may be subject to ordinary income tax and, if taken prior to age 59 ½, a 10 percent federal tax penalty may apply. Fixed annuities are not insured or guaranteed by the FDIC or any other government agency. Variable annuities and Mutual Funds are sold by prospectuses which contain more complete information including investment objectives, strategies, risk factors, fees, contingent deferred sales charges and other costs that may apply. Please read the prospectuses carefully before investing. Past performance is no guarantee of future results. Variable annuities are long-term investment vehicles designed for retirement purposes. Early withdrawals or surrender charges may be subject to surrender charges (contingent deferred sales charges.) Withdrawals may be subject to ordinary income tax and if taken prior to age 59 ½, a 10 percent federal tax penalty may apply. Withdrawals reduce the death benefit, cash surrender value and any living benefit amount. Variable annuities are not insured or guaranteed by the FDIC or any other government agency and are subject to investment risks, including possible loss of principal investment. Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses. Asset allocation does not assure a gain and does not protect against a loss in declining markets.

Courtesy of Zywave LP, an entity unrelated to HollandStivers & Associates LLC. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. HollandStivers & Associates LLC does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues.