Buy sell insurance gives business partners the cash to buy out a partner’s share if that partner dies, becomes disabled, or leaves. It funds a buy-sell agreement, which is a contract that sets out how ownership changes hands after a triggering event. Without funding, the remaining owners may not have the money to complete the purchase. As a result, they could end up in business with a partner’s heirs, or forced to sell.
First, your lawyer drafts a legally binding agreement that sets out the terms of the buyout, including how to value the business.
Next, decide how the buyout will be paid. Life insurance is the most common choice for death, while disability buyout insurance covers a long-term disability. Other options include savings or a loan, although these are often slower and costlier.
Policies can be owned by each partner on the others, or by the corporation. Each approach has different tax results. For this reason, we work closely with your accountant to choose the right structure. For general tax information on corporations, see the CRA’s corporation tax pages.
Finally, as your business grows, update the coverage so it keeps pace with the company’s value.
Our experienced consultants can help you:
Don’t leave your partnership’s future to chance. Contact Nova Star Insurance Consultants today to discuss your buy sell funding needs. The first conversation is free.
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