Why Are These Not Being Funded? And What Is The Risk?

Three reasons why shareholders’ agreements are not funded:

  • Nobody told me. Too bad, but ignorance is not illegal.
  • Tomorrow, tomorrow. It’s hard to come up with the time. You are running a successful business. It is easier to spend the time to develop a new client. The problem is once you get your wings, it is me that has to sit down with your spouse and explain that you never made the time to get the funding done and the value of the company is not there to pass on to them.
  • Cost. Sometimes people see the cost of everything and the value of nothing, especially if you are trying to make payroll. In these situations I sit down with you and look at cash flow to see where it can best be funded with the least amount of impact.

When Do I Need It? And Who Does It?

The best time to do this is at the start of the partnership when everyone is friendly and the energy is good.

Too many owners choose to wait until the business is doing well before creating a shareholders’ agreement. This is a mistake—a duct tape solution. It becomes much harder to agree on how to handle issues that come up later on. You don’t want to wait until one of the four Ds occurs such as dispute, disability, divorce or death.

Once it’s done make sure it’s reviewed from time to time to ensure it still meets your needs. And above all make sure it is funded, and funded properly. Some of these agreements are close to worthless if the final step is not taken to have it funded. You don’t want to have the misfortune of dying at the wrong time and your spouse and kids never get the true value of your company because you died in hard times. You don’t want your family to hear, “We are so sorry but we just can’t afford the cost of fulfilling our promise to your family and still keep the business going.”

My team and I can help you set up the funding formula. The cost of the protection is run through the company to ensure that whenever such an event of death or disability takes place, financially at least everything will be OK and the company can keep running and your beneficiaries get the financial value of the efforts you put into your business.

On the flipside, if the event happened to your partner, you want to know that you can have your partner’s spouse paid off fairly to avoid any legal disputes while you retain the ownership and control of the company for yourself and your family. If you are part of the 90 percent of companies with shareholders’ agreements that do not have buy/sell provisions, or like most of the 10 percent that do and don’t have the proper funding for it, then we need to talk.

If you are like so many people who do not have the funding addressed, or simply have no idea if it is addressed, then do yourself and your partners a favour and call me to get a no obligation review of your shareholders’ agreement. I want to see how your buy/sell reads and I promise, if your exposures to risk are addressed, you get a handshake and a gold star. If you have areas of exposure to risk I will outline the strategies and tools that are needed and take the time to help you to fix them. Contact me at Jessie@jessiechristo.com.


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