by Laurie Salvador, Salvador, Davis & Co., Notaries Public –
Typically, small businesses start small: a few tools, some equipment, a lease and a lot of sweat equity. The business begins to grow and more equipment, larger work spaces and soon staff are added to the mix. Most small business owners have loans attached to their principal residence. Often the business is the dream child of more than one person, so it becomes a partnership. Months and years go by and it flourishes, but owners are often too preoccupied with growing their business to consider what would happen if they died suddenly or became incapacitated.
At the very least, a business owner should ensure they have sufficient life and disability insurance. If there is a partner or multiple owners, they should consider key person insurance. As soon as the business is viable and owns assets, it is important to have a partnership or shareholder agreement drawn up which will set out what happens if a key player is suddenly out of the picture. Spouses and family members need to be considered, since they may be relying on the income of the business owner and might not be a suitable replacement.
Whenever a business is a major asset and the owner has adult children working in that business, there is a potential for misunderstandings. Non-participating children could be left out of the estate plan altogether or they could be at the mercy of siblings who feel a greater sense of entitlement to the corporate assets since they work there. It is important to factor this into the estate plan.
Accident or life insurance coverage is critical for making funds available to surviving business partners and spouses so they can continue without financial burden. Business owners should carefully consider what the ownership of the business would look like if they were suddenly taken out of the equation. How would debt be handled? A non-participating spouse should not be saddled with debt registered against the family home. A partnership agreement should address these issues which might include allowing the business partner to buy out the spouse’s interest. If the business is booming, there could be substantial tax consequences to consider.
At a minimum, the business owner should have a Power of Attorney for personal and corporate matters, a Will naming an executor who could handle the business affairs competently, and adequate insurance to cover debt and loss of income. A partnership agreement or shareholder agreement would avoid many problems in the event of death or disability. This will involve four professionals: a notary to prepare the Will and Powers of Attorney, an insurance broker for the insurance products, an accountant to address share structure and accounting procedures, and a lawyer to prepare the partnership or shareholder agreement.
