Buy/Sell Insurance

Protect your business sucession

Introduction

Succession planning is simply a strategy for the handover of a business from one owner to another in particular circumstances, such as the planned or unplanned departure of a principal from the business.

Buy/sell insurance cover can help to alleviate some of the financial burden associated with these circumstances.

Purpose of buy/sell business insurance

The use of insurance as a funding source provides greater certainty for all parties and can be less expensive than taking on debt. It will help to eliminate the need for:

The business to be wound up or
A forced sale of the business or assets to pay out the departing owner (or estate) or
The remaining owner(s) to use personal assets or borrowings to pay out the departing owner (or estate)

Key considerations when acquiring buy/sell insurance

A comprehensive plan helps to ensure the business survival and can minimise disputes between owners and families. This plan includes a documented buy/sell agreement to cover issues such as:

Establishing who should retain ownership and control of the business, by providing an orderly transition with the departing owner (or their estate) selling their interest in the business to the remaining owner(s).
Determining the ‘trigger’ events which may result in the departure of a principal.
Ensuring that the departing owner (or estate) receives an agreed and predetermined value for their interest in the business.
Providing the remaining owner(s) with funding options to purchase the departing owners interest in the business.

Structuring buy/sell business insurance cover

Buy/Sell business insurance policies can be owned under a number of structures but in most cases self-owned policies are the most tax effective option. This also provides greater flexibility if new owners enter the business or existing owners exit as there is no need to transfer ownership of policies.

Premiums paid on insurance policies used for Business Succession purposes are generally not tax deductible. There may be tax implications including CGT for the departing owner and continuing owners and you should seek specialist taxation advice.

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