How do you preserve your interest in the company?

How Do You Protect Your Business Interest?
“Succession Planning may be a sensitive issue to discuss amongst Partners or Shareholders but a successful transition minimizes disruption and ensures continuous profitability and guarantee satisfactory returns to the Partners and Shareholders”

TODAY.....
Good joint management and effort among business shareholders have built a successful and profitable business. The business shareholder and his family enjoy a comfortable livelihood and good lifestyle.

TOMORROW.....
Suddenly, unexpectedly, a key shareholder dies and the business is disrupted instantly.
What will be the outcome of the shareholder’s business interest and his family livelihood and lifestyle.

FUTURE.....
The surviving shareholder and the deceased shareholder’s family face a critical decision.
What are the options available to the surviving shareholder and the deceased shareholder’s family.

WHAT ARE THE OPTIONS....?

The heirs become active in the business.
- Do they have the experience, skills and expertise to manage the business and be an asset to the company?

The deceased’s share is sold to an outsider.
- Can a buyer be found easily, at what price and acceptable to the surviving shareholders?

The heirs keep their share as inactive shareholders.
- Can the surviving shareholders accept this arrangement with the extra input of effort and yet share equally in the profits?

The deceased shareholder’s share is sold to surviving shareholders.
- Will the surviving shareholders be able to raise the necessary cash for this transaction.

The Ideal Solution ….for All Concerned!
The heirs receive the full value of their share in cash
The surviving shareholders acquire full ownership of the business.

The PLAN
To draft a Buy and Sell Agreement.
Life Insurance as an instrument to finance the agreement.
 

SPECIAL ADVANTAGES

1. To All Shareholders While Living.
    - Prior established market and price on the shares.
    - Promote peace of mind and goodwill among shareholders and their heirs.

2. To The Surviving Shareholders.
    - Surviving shareholders can have the whole business to themselves.
    - No interference from heirs or undesirable outsiders.

3. To The Heirs.
    - Get cash for the deceased shareholder share.
    - No worry or concern about the future of business and profits.

4. To The Business.
   - Provide trust and confidence to creditors and debtors.
   - Assure employees continuity of the business.
   - Business cash flow not affected.
   - Credit standing and goodwill are maintained.

The priceless asset of every successful business is not its plant or equipment or capital or accounts receivable. These assets are valuable only to the extent that people in management can utilize them profitably.

The U.S. Department of Commerce says:
“Almost every business has one or more people upon whom it depends heavily for its major success. Frequently it is the proprietor or manager. It might be the financial person, upon whose shoulders rests the firm’s credit . . . it might be the sales manager . . . it might be a chemist, engineer or scientist whose efforts produce the firm’s lifeblood of ideas.”

This statement results from a Department of Commerce study of 570 business failures in which the major bankruptcy causes were found to be:

1. Unwise management
2. Abuse and over-extension of credit
3. Adverse personal factors

It is obvious that the priceless asset of a business is not found in its property values - but lies in its human life values, the brainpower and character of management.

What Happens When a Key Person Dies
The death of a key person can result in a money loss more disastrous than any loss caused by fire, theft, flood or tornado!

Here are some of the ruinous effects of a key person’s death:
• Losses through errors of judgment of less competent replacements.
• Losses through evaporation of goodwill.
• Losses in company’s credit standing.
• Losses through competition that no longer can be met.
• Losses in hiring and training a new person.
• Losses through impaired morale of other workers.

Business people accept without question the wisdom of protecting the company against the loss of its property values. They take care to insure the physical assets against losses from fire, windstorm, flood, etc. They take every precaution in insuring capital assets against embezzlement and theft. Yet protection against the loss of the management assets of the business may be a far more vital need. Moreover, the fire, theft, or flood may never occur-but death comes to every person, sooner or later.

How The Insurance Plan Works

The Business

• determines the key person’s profit-making value that would be lost at death.
• applies for insurance in this amount on the key person’s life.
• pays the premiums.
• owns the policy.
• is the beneficiary of the policy.
• can borrow against the policy, surrender it for cash, retain all rights to it.

At the key person’s death, the business gets cash

• to stabilize the business and keep it running.
• to assure creditors that all is well.
• to assure customers that business will continue as usual.
• to retire pressing obligations.
• to continue paying salaries.
• to hire and train the successor.
• to pay a temporary monthly income to the key person’s surviving spouse.
• to be used countless ways that may be advantageous in offsetting the loss of
  the key person.

And the cash comes to the business
• at once, when the need for it arises.
• free of income tax--practically the only way a business today can receive
  tax-free income!

Summary of Advantages of Key-Person Business Insurance

If the key person dies prematurely, the plan guarantees that:

Cash will be available immediately to absorb the shock to the business.
Business credit will be maintained.
Money will be there to hire and train a new person and to offset smaller
    profits until the replacement is capable.
Confidence on the part of customers, suppliers and employees will
    remain intact.
The addition to surplus, coming from the life insurance payment, is a tax-
    free increase.

If the key person lives to retirement, the plan guarantees that:

The ever-growing cash value will help tide the business over a stormy
    period.
The policy will serve as collateral for confidential loans at a fair,
    guaranteed rate of interest.
Extra funds will be available for expansion. Such funds are secure
    against loss and require no investment worries.
Yearly increases in cash value are not taxable.
Morale of all employees is strengthened.
Credit standing of the business is enhanced.
Values can be used to supplement the key person’s retirement plan.

And the cost is so nominal:

A surprisingly small investment—only the difference between the net premium paid and the increase in cash value for any year.