Ask Us About Buy Sell Agreement Life Insurance
For individuals, no estate plan is complete without a Will. Similarly, no business plan is complete without a shareholder’s agreement.
For individuals, no estate plan is complete without a Will. Similarly, no business plan is complete without a shareholder’s agreement.
A shareholder’s agreement sets out the rights and obligations of both the shareholder(s) and the corporation. It is a contract that relates specifically to the relationship between some or all of the shareholders and the corporation.
And an important component of a good shareholders agreement is the buy sell agreement provisions allowing for the orderly transfer of shares upon retirement, disability, death, bankruptcy or matrimonial breakdown.
A shareholder’s agreement is a way to capture the intention of the shareholders as to the nature of their relationship with one another and the corporation. A well-drafted shareholder’s agreement can address a variety of topics and in doing so prevent potential future misunderstanding or issues between the shareholders.
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Should a shareholder death or disability occur, the most widely accepted means for funding buy sell agreements is with life insurance, which can either be a:
The following outlines possible concerns or questions to consider when choosing what policy would be more appropriate for your situation.
When life insurance is utilized for funding a buy sell agreement following the death of a shareholder, the insurance policy must have a death benefit that is equal in value to the number of shares held by the deceased shareholder.
There are two buy sell agreement considerations that may determine how the agreement is structured:
It is also possible to use a combination of the “Promissory Note” and the “Corporate Redemption” methods (often called the “Hybrid Method“) for buy sell agreement structuring.
In this case, the shareholders agreement contemplates that:
In this situation, the obligation is funded with insurance owned by the corporation.
Benefit Strategies Inc. can help you with buy sell agreement discussion items and how to properly structure your agreement.
To learn more, or for answers to your buy sell agreement questions, please call us at (780) 437-5070 or send us an Email, or contact our Benefit Strategies experts through the form below.