What happens to your business if something happens to your business partner?

Protecting the business, the owners and the families behind it -

For many business owners, their business is one of their largest assets and often a major part of their retirement and estate plan. Yet surprisingly few have a clear plan for what happens if one owner can no longer continue in the business.

A properly structured business succession plan can help protect the remaining owners, the departing owner or their family and the value of the business. It can also help ensure that the wealth built up in the business can ultimately be converted into funds to support retirement, repay debt, provide for family or form part of the broader estate plan.

If something happened to your business partner tomorrow, do you know what happens next?

Whether it’s death, permanent disability, serious illness, retirement or an unexpected exit from the business, have you considered:

• Do you know what happens to their shares?

• Who controls those shares during the transition?

• Do you know who you could suddenly be in business with? Could a spouse, family member, estate or third party become involved in business decisions & do they share your skill set?

• Would you have the right to buy the departing owner’s interest & if so, could you actually afford to buy them out, or would you need to borrow heavily or use business cash flow to fund the purchase?

• How would the business be valued & what happens if both sides disagree on the value or timing?

• Could the uncertainty affect staff, customers, suppliers or the value of the business?

• Does your current shareholder agreement deal with these events?

These are the types of issues a buy/sell agreement and business succession plan are designed to address before a trigger event occurs.

A buy/sell agreement is a bit like a pre-nup for business partners

You agree on the rules while everyone is on the same page, so if something unexpected happens later, there is already a process for what happens to the shares, how the business is valued, who can buy the departing owner’s interest and how the transaction will be funded.

Depending on the agreement, trigger events may include death, permanent disability, serious illness, retirement or another agreed exit event.

Where an insurable event forms part of the arrangement, such as death, terminal illness, trauma or permanent disability, insurance funding may provide the liquidity needed to help complete the transfer of ownership.

Done properly, the structure can help reduce uncertainty, avoid disputes, protect the value of the business and give both the owners and their families greater certainty.

Getting the structure right

Working with your business accountant and solicitor can help determine how the business should be valued, which trigger events should be covered, how ownership should transfer, and the relevant legal and tax considerations.

Our role is focused on the insurance funding and structuring component, assessing whether insurance can provide the capital required to support the agreed buy/sell arrangement. The objective is simple: if something changes for one owner, everyone should already know what triggers the agreement, what happens to the shares, who can buy them and where the funding comes from.