What if something happens to you, and you can no longer manage your تأسيس شركة في دبي anymore? Who will then take over your business, and will it be managed the way you want?
Business succession planning, also known as business continuation planning, is about planning for the continuation of the business after the departure of a business owner. A clearly articulated business succession plan specifies what happens upon events such as the retirement, death or disability of the owner.
·Income for the business owner through insurance policies, e.g. ongoing income for disabled or critically ill business owner, or income source for family of deceased business owner
For certain components of a good business succession plan to work, funding is required. Some common ways of funding a succession plan include investments, internal reserves and bank loans.
However, insurance is generally preferred as it is the most effective solution and the least expensive one compared to the other options.
Life and disability insurance on each owner ensure that some financial risk is transferred to an insurance company in the event that one of the owners passes on. The proceeds will be used to buy out the deceased owner’s business share.
Owners may choose their preferred ownership of the insurance policies via any of the two arrangements, “cross-purchase agreement” or “entity-purchase agreement”.
In a cross-purchase agreement, co-owners will buy and own a policy on each other. When an owner dies, their policy proceeds would be paid out to the surviving owners, who will use the proceeds to buy the departing owner’s business share at a previously agreed-on price.
However, this type of agreement has its limitations. A key one is, in a business with a large number of co-owners (10 or more), it is somewhat impractical for each owner to maintain separate policies on each other. The cost of each policy may differ due to a huge disparity between owners’ age, resulting in inequity.
In an entity-purchase agreement, the business itself purchases a single policy on each owner, becoming both the policy owner and beneficiary. When an owner dies, the business will use the policy proceeds to buy the deceased owner’s business share. All costs are absorbed by the business and equity is maintained among the co-owners.
