Buy & Sell Agreements

A buy and sell arrangement, supported by a buy and sell agreement and life insurance, will ensure that on the death of a business owner, the business can continue to operate with as little disruption as possible for the surviving business owner/s, as well as ensuring that the estate of the deceased business owner receives fair value for his/her business interest, as well as settlement of his credit loan account. Interestingly, there seems to be a trend for business owners to transfer their business interest into a trust.

Note that where a business interest is held in a trust (or a corporate entity, such as a company) the reality is that even though the trust or corporate entity can continue to hold the business interest in perpetuity, there is often only one of the trustees/shareholders who is directly involved in the business, who influences the success of the business and upon whose death, and therefore, in all likelihood, the trust or entity would no longer wish to continue to hold its interest in the business, as it would not make commercial sense to do so.

Company Owned Insurance

There are numerous reasons why a company would take a life insurance policy out on key employees. For one, the tax-free proceeds that are received after the death of a key person can be used to cover any costs that would arise when hiring that individual’s replacement. The insurance policy can also be used to cover employee benefit liabilities e.g. loan accounts.