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Business Owners Risk

Most small businesses are owned either by an individual or a number of individuals. Ownership is often on a 50:50 basis where there are only two parties involved, however this can vary with individuals owning larger or smaller numbers of shares.

The main risk faced by business owners is that one of the parties dies prematurely or becomes completely disabled.

This risk is normally covered by an insurance contract that will provide the necessary funding to facilitate a buy out of the deceased/disabled shareholder.

There are a number of crucial points that need to be recorded at the time the insurance is established.

They are:    

• The value of the business today 
• How the value was established and how it will be established in the future
• The level of insurance cover 
• The type of insurance benefits to be included
• The ownership of policies
• The treatment of premiums – who pays and why?

All these points need to be recorded in a formal agreement. This agreement is often referred to as a ‘buy/sell agreement’ or a ‘share purchase agreement’. It is separate from other agreements such as a ‘shareholder agreement’ as it deals solely with the proceeds of the insurance and the transmission of shares or equity.

The purpose of the insurance and the agreement is to protect the interest of the business owners. Contact us now to find out more.