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					 Business Succession

Diversified Brokerage Specialists
  Planning Your Company’s

Could your business survive
retirement, disability, or death of
owner or key employee right now?
      Planning Your Company’s
             Future (Cont.)
   Without adequate planning, your
    business may be negatively impacted
    or forced to close in relatively short
    period of time
   Why? Not because you did
    something wrong, but because you
    did nothing
Business Succession Planning
      Crucial step to help ensure
       successful transfer of your
       company or business interests
      Helps assure that funds will be
       available to help provide
       maximum financial flexibility in
       event of retirement, death,
       disability, or other separation
       from business
Key Person Coverage
   How long would it take to
    replace your key person(s) and
    how much business does your
    company stand to lose during
   Insurance policy on key
    person’s life, where business is
    owner and beneficiary, may
    help cover cost of transition
    Buy-Sell Planning Agreement
   Written guide to help you through
    your business succession planning
   Can help mitigate conflict and
    speed up transition
What Is a Buy-Sell Agreement?
   Legally binding contract that can be
    used with all types of businesses
   Agreement must be drafted by
   Stipulates that, at death, retirement,
    disability, or other withdrawal of
    principal, his/her share of business
    must be sold to remaining partners,
    shareholders, or business itself
          What Is a Buy-Sell
          Agreement? (Cont.)
   Remaining partners, shareholders, or
    business itself must purchase portion of
    business owned by deceased, retired,
    disabled, or withdrawing principal
   Life insurance may be purchased to help
    fund agreement at death or retirement
   Disability Insurance is critical in
    providing funding in the event of a long
    term disability.
Key Provisions of a
Buy-Sell Agreement
Buy-Sell Agreement specifies:
   Owner will not dispose of his/her
    ownership interest during owner’s
    lifetime without first offering it for
    sale to other owners
   Who will be selling and who will be
   It is mandatory for seller to sell and
    for buyer to buy
Key Provisions of a Buy-
 Sell Agreement (Cont.)
   Buy-Sell Agreement
      Purchase price based upon pre-
       established formula to be used at time of
       death in order to determine definitive
       price for ownership interests
      Which state laws apply
      Changes/termination of agreement
        — Process to update coverage should be
           established and valid reasons to
           terminate agreement should be stated
    Business Valuation
   Often, owner has no idea what business is
    actually worth
   Most business owners over- or undervalue
    their businesses by at least 50%
   Without proper valuation, owner’s financial
    plan may not meet owner’s needs at time
    of major event, such as sale of business,
    divorce, or death of owner
   Regular business valuation can determine
    current market value of business
   Valuation is crucial factor in determining
    individual’s net worth and life insurance
    Types of Buy-Sell Agreements—
            Cross Purchase
   Calls for each business principal to
    purchase proportionate share of
    each other’s interest in business
   Each principal purchases a life and a
    disability insurance policy on each of
    the other business principals
   Issues to consider
Cross Purchase

                 Policy Owner &
          Beneficiary on Owner B’s Life

Owner A             Premium


                                          Life Insurance
                 Policy Owner &
          Beneficiary on Owner A’s Life
Owner B
    Types of Buy-Sell Agreements—
          Stock Redemption

   Business (instead of individual) agrees to
    purchase stock from business principal(s)
   Corporation owns life and disability
    insurance policy on principals
   Issues to consider
    Stock Redemption
 Stock Redemption                            Stock
Buy-Sell Agreement                          Redemption


Owner A                                                   Owner B
                                   Policy Owner &
                                Beneficiary of Policies
                                  on Owners’ Lives

                         Life Insurance
Types of Buy-Sell Agreements—

   Possible solution to changing tax
    laws, business needs, as well as
    personal issues
   Actual purchaser of deceased
    principal’s ownership interest and
    respective amounts not determined
    until death of business principal

          Buy-Sell Agreement               Buy-Sell Agreement
              1st Option                       1st Option


                          Buy-Sell Agreement
                              2nd Option

Owner A                           Or                            Owner B

           Premium                                Premium

     Policy Owner &                                Policy Owner &
  Beneficiary on Owner                          Beneficiary on Owner
           B’s Life                                      A’s Life
      Protecting the Business
   Business has first option to
    purchase interest
   If business does not exercise
    option, owners have option to
    purchase interest
   If owners do not exercise option to
    purchase interest, business must
    purchase interest
             Minimize Risk
   Help protect yourself and your
    business from economic loss and
    increase likelihood of success
   Reduce risk of loss at death of key
    person or at time of business
   Plan to retain control of business
    and assure funds will be available
    to provide financial flexibility
              Executive Benefit Checklist
   Disability Planning
   Salary continuation planning
   Equalization of disability benefits for highly compensated
   Overhead expense protection for owners of smaller
   Disability buy and sell plans

   Life Insurance Planning
   Review of personal and business coverage
   Key Person coverage
   Buy Sell
   Deferred compensation
   Estate Planning

   Long Term Care Planning
   Using tax deductible premiums to pay for Long Term Care