Business succession is an important aspect to be considered especially for business owners who have established a successful business and would like to pass it on to the next generation in the family. Businesses are commonly entrusted to family members of business owners and are commonly honed to continue what they have already established. However children do not always take on these roles especially when they have no interest in the business itself and prefer to pursue a different career path. In this case, owners have to think ahead and establish a plan for the betterment of their businesses as well as their family members. It is in the interest of business owners especially in partnerships, to ensure that their shares are protected and taken care of should they pass away.
Let’s take for example the case of Mr. Lim and Mr. Toh.
Both Mr. Lim and Mr. Toh, aged 50, are both owners of a trading company. They ran the company for over 15 years and are worth more than $ 10 Million. Both their wives are home makers. Both had also maintained a good partnership over the years. Unfortunately, both their children had no interests in managing the business and pursued different career paths. Having spent almost their entire lives in running the business, they both feared that if anything unfortunate happens to one of them, no one will take over the business. Will they be able work on at a level ground with shareholders from the other family?
As a result, both Mr. Lim and Mr. Toh decided to purchase a 1.5 million premium Universal Life plan under a buy-sell agreement which had a coverage of $ 5 Million each. Should anything unfortunate happen to either of them, the agreement is to use the proceeds to buy over the shares from the other party, while the company continues functioning. On the other hand, if both of them decide to sell or close the company down in the future, the plan will be able to generate a fixed 2 percent return on their premiums. This will be an essential investment for their company. Furthermore premiums paid are tax-deductible too.