Top 10 Financial Planning Concepts for Business Owners: #4 Prepare for the Unexpected

When there is more than one owner of a company, it is important to have proper documents in place to plan for unexpected situations.

First and foremost, a Unanimous Shareholder Agreement (USA) is a legal agreement between shareholders of a corporation that specifically lays out the powers of directors to manage and oversee the business. In addition, it is just as important for each owner to have a current will, enduring power of attorney, as well as a personal directive/living will.

Secondly, a formal Buy/Sell agreement (or buyout agreement) is a legal document created between the owners that specifies the procedure and methodology the corporation will follow when one or more owners decides to or is forced to sell their ownership stake in the private company. This document is very important as it can prevent any disagreements when that situation arises, especially when it arises unexpectedly due to the illness or the passing of an owner.

Taking the Buy/Sell concept to completion involves putting in place life and disability insurance on the owners so that there is a funding mechanism if something should happen to an owner. An insurance policy provides an injection of cash to the corporation to take the strain off of the company’s cash flow and to provide a buyout of that owner’s share of the company.

As always, we encourage you to reach out to your trusted tax planning professional for information and advice tailored to you and your business.

 

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