This section concerns Canadian-Controlled Private Corporations (CCPCs). You'll get the best results with financial planning.

Three Ignored Business Risks

Oh, I can't close my eyes
And make it go away
— U2, Sunday Bloody Sunday

Ignoring a risk won't make it go away. As an owner, you focus on building your business. It's very easy to overlook the financial implications of

1. Your Disability (or a key employee's)
2. Your Retirement (or a key employee's)
3. Your Death (or a key employee's)

Without planning, your business can be devastated.

You have probably thought of these risks but may not have acted. Even if you did act, situations change — plans need to be reviewed and updated.

Your Disability

During your working years, you are much more likely to suffer a disability that prevents you from working than to die.

Here are key questions:

• How will you get income during your disability?
• During a temporary disability, how will the business overhead expenses be covered?
• During a permanent disability, who will buy your shares? How will they pay you?

Consider

• disability income replacement insurance
• business overhead insurance
• insurance for shareholder buyout on disability
• critical illness insurance

Your Retirement

The value of your business can drop unless you have developed succession plans in advance. A less valuable business means less retirement income for you.

Here are key questions:

• Who will take over? Will they be ready?
• In case of a sale, who will buy? How will they pay?
• How will your retirement income be provided?
• Will you continue in a part-time or consulting role?

Consider

• a formal succession plan
• life insurance, which can be effective tool for tax-free investment growth and tax-free retirement income

Your Death

What can you say about death? Here are key questions:

• Who will run the business? Will they be ready?
• Who will buy the shares of the deceased shareholder? How will they pay?

Consider

• a buy/sell agreement
• key person life insurance to fund the obligations

Corporate-owned life insurance lets you take advantage of the tax-free Capital Dividend Account (CDA).
Here's how.

1. The corporation receives a tax-free death benefit from the insurance company
2. The corporation credits the death benefit less the policy's Adjusted Cost Basis (ACB) to the CDA
3. The corporation declares capital dividends and distributes them tax-free to the shareholders

In corporate situations, insurance is usually setup as follows:

• policyowner: corporation
• life insured: key person (e.g., shareholder)
• beneficiary: corporation

Articles

• Tax planning: The top five insured strategies (Riscario Insider blog)