Business Insurance Part III - Sole Proprietorships-the Advantage of Buy-sell Agreement
A sole proprietor is responsible for every aspect of the business, although after a while they may employ others to carry out these duties
The sole proprietor shares many of the same succession problems as the incorporated business, with the added responsibility of being solely responsible for the business and the legal liabilities.
Since the sole proprietor alone receives the after-tax profit, the sale of their business after death is limited to only three options.
1. Family successor
2. Employee buy-out.
3. Outsider buy-out.
There are problem if
a) There are no family successor or
b) Successor has not such experience to carry on the business or
c) Employees and family want to buy out but neither party has the money to take over or ,
d)It might be difficult to find an outsider with the cash and the desire to buy-out the company.
The best answer may be to provide for succession of the business with a properly funded, binding buy-sell agreement using the criss-cross method funded by either a direct payment by the life insurance owner or a split-dollar agreement. The insurance proceeds will retain their tax-free status when paid at death.
Life insurance binding buy sell agreement will certainly benefit the family member or employee with limited funds.
1. A properly drawn, funded buy-sell agreement will guarantee the asset value if an employee(s) has shown the interest and the ability to continue the business and the best way to fund the buy sell agreement
a) the employee's earnings.
b) the employer could loan the premiums to the employee and increase the life insurance enough to fund the buy-out as well as repay the loan, plus interest at death.
A pre-arranged sale can also be funded by a split-dollar agreement. At death, this agreement provides funds for the buy-sell agreement. At retirement prior to death, the cash surrender value can help provide retirement funds, which are available because the buy-out has commence.
If you need more information of the above subject, please visit:
Kyle J. Norton
http://medicaladvisorjournals.blogspot.com/
http://businessinsuranceiii.blogspot.com/
All rights reserved. Any reproducing of this article must have all the links intact.
Related Tags: insurance, business, life insurance, business insurance, insurance quote, insurance agency
I have been studying natural remedies for disease prevention for over 20 years and working as a financial consultant since 1990
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