1. Business Continuation Planning
Desjardins Insurance refers to Desjardins Financial Security Life Assurance Company.

2. What would happen to your business if you died last night?
Who is going to run the business?
Will your spouse or family be involved?
What about remaining partner(s)/owner(s)?
Will the business be sold to them?
Will they want it?
How much would they pay for it?
Where would the funding come from?
What are your wishes?
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

3. What would actually happen?
Is the business readily marketable?
Can the assets be easily converted to cash for the benefit of your family?
Is there a logical successor who can take over the business?
family member
key person
partner
other shareholder
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

4. Options when a business owner dies…
The business can be sold to an outsider
The remaining owner(s) can continue in business with the deceased’s spouse, or family
The deceased’s interest can be sold to the remaining owner(s), or other interested party
The assets may be sold and keep the company
The business can be liquidated.
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

5. Buy Sell How is this done? Agreement
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

6. Buy Sell Agreement What is it?
A legal agreement which provides for the transfer of a business interest in the event of:
Death
Disability
Retirement
Desire to leave business
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

7. Buy Sell Agreement Who is it between?
Business owners, either shareholders or partners
Business owner and key employee(s)
Business owner and child/children
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

8. What are the benefits? For the deceased’s family …
They have a guaranteed market for the business interest
They are guaranteed a fair price
They are not forced to become involved in the business or be dependent upon remaining owner(s)
It facilitates the settlement of the deceased’s estate
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

9. What are the benefits? For the remaining owner(s) ...
The business keeps running
They continue as sole owner(s) without involvement from deceased’s family
It provides a smooth transfer of the business interest
The sale price, or the method to determine it, is fixed in the agreement
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

10. What are the benefits? For all parties ... There are NO SURPRISES!
The agreement is entered into when all parties are alive and have input into details of the business continuation plan.
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

11. Where does the money come from?
The agreement establishes the terms of transfer of the business interest
However
where does the money come from to complete the transaction?
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

12. Sources of money at death
Sell personal assets
Borrow funds
Pay over time
Life insurance
Let’s examine each of these sources ...
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

13. Sell Personal Assets except there might be …
Potential loss of value if a forced sale
Possible loss of income producing assets
Potential tax consequences
Insufficient funds provided
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

14. Borrow funds, however… Can a lender be found?
Interest payments will add to cost
Can business generate sufficient funds to repay loan?
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

15. Pay over time, but …
Deceased’s family is dependent on ongoing success of business
It could negatively affect the cash flow of the business
The remaining owners must pay both principal and interest
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

16. Life Insurance "The Economical Method"
It provides immediate cash when required
It’s economical - the annual cost is a fraction of the benefit ultimately paid
The insurance proceeds are tax-free
The business continues unencumbered
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

17. Insurance Funding Methods
Personally owned
Criss cross
Corporate owned
Promissory note
Share redemption
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

18. Personally Owned Criss Cross
Company
B owns 50%
A owns 50%
B owns
Insurance on A
A owns
Insurance on B
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

19. Personally Owned Criss Cross
A dies
Insurance proceeds B
A's widow
A’s shares
B owns 100% of company
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

20. Criss Cross Advantages Disadvantages easy to understand
corporate creditors have no access to insurance proceeds
insurance proceeds received tax-free
Disadvantages
insurance costs may be inequatable due to age, health and percentage of ownership
insurance premiums paid with after tax personal dollars
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

21. Corporate Owned Company A owns 50% B owns 50%
Company owns life insurance on A and B.
Company is owner, premium payer and beneficiary.
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

22. Corporate Owned Promissory Note Method
A dies
Promissory note B
A's widow
A's shares
B owns 100% of company
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

23. Capital Dividend Account
Corporate Owned Promissory Note Method
Capital Dividend Account
Company
Insurance proceeds
Tax free capital dividends
Repays note B
A’s widow
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

24. Promissory Note Advantages Disadvantages
premiums paid with corporate dollars
impact of premium differentials reduced
Disadvantages
more complex than criss cross
life insurance proceeds are not protected against corporate creditors at death
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

25. Corporate Owned Share Redemption Method
A dies
Insurance proceeds
B now owns
100% of co.
Company
$ from CDA
A’s shares
A’s family
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

26. Share Redemption Disadvantages Advantages
premiums paid with corporate dollars
impact of premium differentials reduced
Disadvantages
complex arrangement
life insurance proceeds are not protected against corporate creditors at death
no increase in survivor's ACB
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

27. Which method is best? Considerations:
Tax bracket of company and individual
Is capital gains exemption available?
Degree of complexity involved
Terms of the buy sell agreement
Number and ages of parties to agreement and percentage of ownership
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

28. Income Tax Issues
What capital gains implications arise on transfer of business interest?
Do shares qualify for $750,000 capital gains exemption?
Does agreement allow for payment of tax free Capital Dividends?
Are wills co-ordinated with agreement?
Do Stop-Loss Rules apply?
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

29. Full Disclosure…
This presentation is a general overview of business continuation arrangements.
Consult your legal and accounting advisors for detailed information.
Regular review of agreement and funding is recommended.
Other relevant factors may be critical to final decision.
DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY
/30

30. For more information, contact: BRYANT & WHITFORD CONSULTANTS
ALBERT HILL - President
FOR REPRESENTATIVES' USE ONLY
/30