Billboard Loans has seen a lot of small outdoor companies who don’t have shareholder succession agreements. This is a big mistake. We’ve had two lending clients die suddenly. In each case their company was protected by a succession plan which allowed the business to function without disruption.
What should a good succession plan shareholder agreement do:
- Restrict the transfer of shares outside the ownership group.
- Establish how value is determined when one owner has a death, disability, termination or if one party gets a divorce.
- Have a funding mechanism (life insurance or a seller note) to fund an ownership buyout if one party wants to sell, dies or is disabled.
When should you set up a shareholder agreement?
When you form a company. If you fund a shareholder buyout with term life insurance it will be way cheaper to buy the insurance as soon as you can when you are young and have low premiums.
Debt and Succession Plans
- If you take on debt you should buy a key man insurance policy on yourself in the amount of your debt with your lender as beneficiary. If you die your lender will be paid off and your business will go into your estate free and clear of debt.
- If you do pretty much everything in your company yourself and your spouse is not in the business you also might want to draw up a formal succession plan which gives a trusted attorney or broker or financial planner the power of attorney to run your outdoor business and conduct an order sale of the business in the event of your debt. Insider has done this for a couple of his smaller clients.