When planning for ownership changes or transfers that occur as the result of retirement, adverse events or expansion, it is important to put together a team of experienced attorneys, financial advisors and insurance professionals. All contribute to making this a successful transition from a tax, financial and legal perspective. SKCG Group assists clients in the area of executive planning and corporate transition.
All corporations and partnerships employ individuals critical to the success and growth of the organization. The premature loss of a key employee through death or disability could have a significant financial impact on the future of the entire enterprise.
SKCG structures cost-effective life insurance and disability income programs often on a tax-advantaged basis to protect the business, its employees, and the executive's family following unplanned, adverse events. A business may choose to insure a key person to preserve and maximize the value of the business interest. Frequently, it is the founder, business owner or senior executive who is the key to the future success of a business. Companies often implement key person life insurance, disability and buy-out programs to provide income replacement for its key executives and cash for the company to buy the executive's stock in the event of an untimely disability or death. Insurance can provide funds to the company to finance hiring a replacement for the key executive, pay outstanding loans, pay estate tax that may come due upon the executive's death and compensate family members for a transfer or purchase of outstanding stock.
Business succession planning should be a priority for every business as key executives will eventually retire. The question of what happens to the remaining partners becomes paramount. Who will manage the business? How will ownership be transferred? Will the business carry on or be sold? What are the tax implications? Who will pay the taxes?
Business succession planning seeks to manage these issues, setting up a smooth transition between current and future owners. In the case of family businesses, succession planning can be especially complicated because of relationships and emotions involved. Many family-owned businesses do not survive the transition from founder to second generation.
Estate taxes can claim a major portion of a taxable estate frequently resulting in businesses having to liquidate or take on debt following an owner's death in order to survive.
A Buy-Sell (or Buy-Out) Agreement is an arrangement that provides the terms and funding method under which the distribution of a company's assets and interests will be made in the event of the owner's death, disability, retirement or premature withdrawal from the business. As individuals enter into a business arrangement to form a new company or take over an existing one, they must agree on a variety of issues such as the responsibilities and compensation of principals, governance and the decision making process, contingency plans, and the company's ongoing business strategies.
Seasoned and dynamic executive leadership is difficult to find and retain. To successfully attract this talent, employers must go beyond providing competitive base salaries by creating compensation and employee benefits programs that meet the individual needs of key executives. Well-designed executive and deferred compensation programs for high-level employees serve the interests of the business and key employees.
For the employer, these programs can help establish loyalty and increase the motivation of valuable executives while creating a logical structure around which compensation planning and budgeting can be managed. For the executive, concerns about family security, the creation and preservation of wealth, and tax issues can be addressed.
Typically, comprehensive executive and deferred compensation programs include life insurance and disability income plans that minimize the employee's taxable burden while sheltering income all critical elements for proper individual financial planning.