A corporate owned life insurance policy in a shareholders buy/sell agreement is used to fund the share purchase of the deceased shareholder. There are many types of shareholder buy/sell agreements for different share structures. In a corporation with more than one shareholder a lawyer draws up a shareholder’s buy/sell agreement, this is the optimal time to purchase life insurance to fund the agreement.

In a privately controlled corporation the shareholders are partners actively involved in running the company. A tragic unforeseen death of one of the partners or shareholders could have devastating consequences on the company without proper planning. The deceased partner’s family is in need of money and the active partners may not have the resources to buy out the deceased partner’s shares of the company. This is when the life insurance policy is used to buy out the shares of the deceased partner. Without life insurance to fund the share purchase, the company or its assets will have to be sold to pay the deceased partner’s family.

There are many factors to consider when structuring a shareholders buy/sell agreement. Not all shareholders may be insurable in which case alternative funding mechanisms such as a sinking fund need to be set up.

When the partners start their business they may not anticipate the future value of the company.

When the partners start their business they may not anticipate the future value of the company. This can lead to additional problems for the partners, if there is no life insurance or the life insurance initally purchased is no longer sufficient to fund the shareholders buy/sell agreement.

The rules for setting up and funding a shareholders buy/sell agreement are complex. Setting up a buy/sell agreement requires professional services from knowledgeable accountants, lawyers and insurance agents.

Insurance agents play the most important part in the process, they arrange for the actual funding. Without funding a shareholders buy/sell agreement would not be complete. Life insurance is the most tax efficient and financially advantageous way to fund a shareholders buy/sell agreement.

Contact Us for a Life Insurance Quote to Fund your Buy/Sell Agreement

Ryan Morrison

403-988-4978