While there are many aspects to business succession planning, Framework focuses on the need for planning in the event of a sale of the business, the business owner’s death, disability, or ultimate retirement. We work directly with the owners of closely held businesses to identify the most likely candidates for acquiring the business. These are usually:

• A financial or strategic buyer;
• Existing partner(s), co-shareholder(s) or co-member(s) in the case of an LLC;
• Key management who have indicated an interest and proven an ability to manage the business beyond the owner’s involvement;
• Children or family members of the owner/founder;

In all such circumstances, Framework will develop the ideal plan to maximize the value of the business to the founder/owner and his/her family. Often, these plans utilize Buy-Sell agreements between the owner and the intended purchaser of the owner’s interest in the business. The agreement would normally require the owner or his/her estate to sell their interest in the business in the event of the owner’s death, disability, or retirement, while at the same time committing the intended purchaser to follow through on the transaction.

Most often, these buy-sell agreements are funded with life and disability insurance. Life insurance contracts can be created not only to fund a transfer in the event of an owner’s death but can be designed to provide sufficient cash to allow a purchaser to either completely fund or deliver a significant deposit on the retirement of the owner. Framework has implemented and funded numerous such arrangements.

In addition to Buy-Sell Planning and Funding, we also provide the following other business continuity planning:

• Key Person: With most small businesses, the owner is often the key person in the business. With many other business entities, both large and small, a key employee in the business might be responsible for much of the business’ continued revenue or profitability. In either case, key person life insurance can be purchased on the life of the business owner or employee to protect the company in the event that he/she unexpectedly passes away. With key person insurance, the business owns the insurance policy, pays the premiums, and is also the beneficiary. If the business owner or key employee dies, the business receives the policy proceeds and can use the funds to hire a capable replacement, pay off debts, or simply buy time until the assets can be liquidated and the business closed.
• Loan Collateral Coverage: Loans are crucial to the expansion and growth of small businesses. Whether a business is acquiring funds from a local bank, the SBA, or a private lender, many of these institutions will require life insurance on the business owner(s) as security for the loan. In most cases, inexpensive term life insurance policies that offer guaranteed level rates for the duration of the loan can be purchased to satisfy this requirement. When buying life insurance to secure a loan, the company pays the premiums, owns the policy, and is the named beneficiary. When the policy is effective, a collateral assignment agreement can be signed by the business owner and the bank. The collateral assignment is a lien against the policy proceeds. In the event of the business owner’s death, the bank would have first rights to the policy proceeds in the amount of any outstanding loan balance due. The business would then receive any remaining proceeds.

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