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As a business owner there are a number of problems that arise when a shareholder or key man dies. These problems can continue for the corporation beyond the death of the owner as the corporation will continue. In the early phases of a business, term assurance may be useful, but in many circumstances permanent life insurance becomes attractive because of the lower corporate tax rates.
As a business owner, have you asked yourself the following questions?
Close Corporation
Close Corporation – If another shareholder dies?
- Where will the money come from to buy my shares, and at what price?
- If another shareholder dies do I want to acquire his stock and continue the business, without resistance from inactive stockholders heirs, who are more interested in continuing income than running the business?
- Is there a buy-sell agreement in place to affect change of ownership? At what price, and how will the share transfer be funded?
Close Corporation – In the case of your death?
- When I die, will there be a guaranteed market for my shares, if my heirs no longer want to continue in the business?
- Do you want your family to get the going concern value of the business or a fire sale value, because the person responsible for its successful operation has died?
- If you want your family to retain their stock and continue the business, will there be enough money in the business to enable your heirs to successfully manage it?
Key man Needs
- How will the loss of a key person affect your business profits and credit line?
- How much money would you like to be paid for the loss of a key man?
- Would you like to insure one year’s profits?
Corporate Insured Retirement Plans
- How can the corporation accumulate enough surplus funds to pay for your retirement when corporate tax rates on invested capital are so high?
- How can my family get tax-free money out of the business when I die? And is there a way I can use corporate dollars to reduce capital gains taxes?
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