...for owners/shareholders:

Business Protection Planning

For individuals, no estate plan is complete without a will. Similarly, no business plan is complete without a shareholder or partnership agreement containing buy/sell provisions that allow for the orderly transfer of business interests upon retirement, disability or death. Selectpath advisors work with business owners to sort through their options in addressing these issues. Our focus is putting you on the right path for business owners, so you can make informed decisions for your business. BACK TO TOP

Individual Pension Plans

You may already know about some of the advantages of incorporation such as preferential tax treatment on business income and the ability to tailor your compensation for maximum tax efficiency. But another major benefit is the ability to use an individual pension plan (IPP) to fund your retirement and gain considerable savings and tax advantages.

How does an IPP work? Who can benefit from an IPP? Why use the IPP service? BACK TO TOP

Key Person Coverage

Disasters come in all forms. In the business world, the loss of a key employee can translate into corporate red ink. Simply put, the most important element of a successful business is its people; more specifically, its most valuable people.

The key employees of a company are not just its experienced senior executives; they also include top sales people who continue to shine year after year, technical wizards who always seem to find or invent the best technology for the job, and top-notch office managers who mold administrative units into works of art. The loss of a valuable employee through death or permanent disability could seriously affect the position and public perception of a company. Its sales could drop, the company's cash flow could slow and its position with creditors could become strained. At the very least, a new person has to be recruited, trained and guided to replace the key employee.

Situations like these need not spell the end of the success of the business or the loss of momentum, because key employee protection plans are available to satisfy the needs of the business sector. A corporate-owned life insurance and/or disability insurance policy on key employees will provide a business with tax-free dollars to offset lost revenues and reassure concerned creditors, giving the business time to regroup and replace its key individual.

You don't have to panic; the right package will buy you time. Selectpath can tailor a key person coverage package to ensure you have the funds to keep your business operating at peak form. BACK TO TOP

Buy-Sell Funding

Buy/sell agreements provide for the transfer of the ownership of the business in different circumstances - death, disability, retirement or disagreement. At death or disability, for example, the remaining owners may not want to be in business with the deceased owner's heirs or the non-active disabled owner. As well, the heirs or disabled owner may prefer to receive the value of the deceased owner's share of the business in cash. If an owner retires, an agreement paves the way for business as usual. If the owners have a falling out, a buy/sell agreement will enable the business to continue to be "wound up" in an orderly fashion.

A buy/sell agreement should deal with:

Who will buy the shares;
What the terms of the sale will be;
When the sale will take place;
Where the money to buy the shares will come from; and
How much the purchase price of the shares will be.

Proper funding should be in place to ensure that money is available to buy the shares of a deceased or disabled owner, should the event occur. Life insurance provides the necessary dollars at a far lower cost than borrowing to fund a buy-out. Funding the buy-out directly from cash flow can be difficult, as the loss of the owner has probably already placed strains on the cash flow of the business. The best alternative is to be prepared with life insurance.

The goal is simple: satisfy all parties so the business can get on with business. Although a buy/sell agreement is a legal document, it still needs to be properly funded. If it isn't, an unexpected crisis could cause serious financial concerns for the business and its owners. A properly funded buy/sell agreement provides access to adequate funds to facilitate any share purchase obligations contained within the agreement.

Selectpath can structure an effective and efficient funding vehicle to complement your buy/sell agreement. Don't wait until it's too late. BACK TO TOP

Business Continuation Planning

Studies show that businesses often fail for two reasons: lack of capital and mismanagement. The loss of a key owner has been the downfall of many businesses for precisely those two reasons.

To beat the odds, business owners should take great care to have a sound business continuation plan that focuses on resuming and continuing the management of operations in the event of their retirement, permanent disability or death. Business continuation planning goes beyond contingency planning to documentation of actions to be taken, resources required and procedures to be followed to ensure continued availability of essential services, programs, systems and operations in the event of an unexpected interruption.

The options available to you in such an event, normally include one of the following: liquidation; retention of the business for the owner's family; or sale of the business. However, there is a major difference between exercising these options in an unplanned manner, and creating a plan. Without a plan, the departing owner or owner's survivors stand to lose both value and income from the owner's investment in the business and the remaining owners stand to lose some or all of their investment or to see their control diluted.

Accomplishing the orderly liquidation, retention or sale of a business requires:

Planning — This must take place before the retirement, disability or death of an owner.
Appropriate Documentation — This involves the development of a written business continuation plan that specifies what will happen to each owner's interest when he or she leaves the business due to retirement, disability or death. The plan should also indicate the value of each owner's interest.
Adequate Funding — This is critical if a departing owner's interest will be purchased by the business or by the remaining owners. Without funding, there is no way to guarantee the plan can be implemented when the time comes for an owner to leave. Life insurance is one way to effectively fund a business continuation plan.

Business Loan Protection

It can be difficult to obtain adequate debt financing for a small business. Creditors will often require the business
owner to personally guarantee a loan. The death of the business owner or another key executive may cause
creditors to demand immediate repayment of outstanding business debts.

This can place a significant burden on the business and force the liquidation of key business assets at fire sale prices at a time when business results may already be severely impacted by the death.

In addition, if the business owner has personally guaranteed the debts incurred by the business, the owner or the owner's estate may be liable for any outstanding debts that the business is unable to pay.

If effective planning hasn't taken place, the business may not survive the owner's or another key executive's death.

A solution is for the business to purchase an insurance policy on the life of the business owner(s) or other key executives. Proceeds from the life insurance policy are taxfree and may be used to pay down the outstanding business debts.

A creditor may require a small business to purchase collateral life insurance to protect the creditor's interests, particularly if the death of the business's owner could affect the value of business assets used to secure the debt. In other cases, the business owner may simply want to ensure that business debts will be fully repaid if he or she dies to minimize financial risks for heirs and to permit the business to continue free of debt.

Generally, life insurance premiums paid for business loan protection are not deductible for tax purposes. However, if a life insurance policy has been collaterally assigned to a restricted financial institution, a portion of the premiums may be deductible.

A life insurance policy purchased for business loan protection can help a business negotiate loans and repay business debts with tax-free life insurance proceeds when a a business owner or another key executive dies. It can also prevent business owners or their estate from becoming personally liable for the business debts if the owner dies.

Short Term Cash Management

When you're running your own business, few things are more important than the bottom line. One of the keys to success is making every dollar work as hard as it can. However, one dilemma many business owners face is what to do with excess shortterm cash. You want your cash to earn additional revenue for your business, but you don't want it to be diffi cult to access, should the need arise. BACK TO TOP