Your business can often feel like having a child. You have birthed it, fostered its growth, and hope for nothing more than to watch it thrive. Often, this is done in partnership with others. Your fellow shareholders.
Generally, shareholders in a business will all bring something to the table. A unique set of skills, experience, and professionalism. Together, you work to guide the success of your business.
Often overlooked, is what happens if a Shareholder must exit the business?
In what situation, would you, or your fellow shareholders need capital, to fund the purchase of an exiting shareholders percentage of the business? If it happened tomorrow, could you fund a purchase? The cost of borrowing far outweighs the cost of Insurance.
There are different situations in which you may need to fund a shareholder buyout.
Is it upon the death of a shareholder? If so, a Life cover policy can be used as the vehicle to ensure a smooth transfer of shares between the remaining shareholders, and the estate of the deceased shareholder.
Perhaps it’s in the event of Permanent Disability? If this is the case, a Total Permanent Disability Insurance policy is used to ensure a smooth transfer of shares between the remaining shareholders, and the estate of the deceased shareholder.
It will often depend on “the rules of the game” you discussed when venturing onto business. However, not every business has this discussion. The formal document for the “rules of the game” takes the form of a Buy/Sell Agreement. A legal agreement that facilitates the smooth transfer of shares as pre-agreed.
Your Buy/Sell Agreement will outline the terms upon which a shareholder buyout will be triggered. We have access to legal experts who can assist in talking you through this agreement if it is not something you have reviewed before.