This case study involves business continuation and succession.
It's hypothetical, of course, and since every situation is unique, you'll want to talk to
your financial advisor about how this kind of planning will benefit your company.
28 years ago, Ken Erickson, Joe Nicolet and Bob Cook bought attractive, unused land on the edge of town.
The three of them incorporated and started a trucking company, Overland Trucking,
ad equal shareholders.
Each owner held a hundred shares.
Ken was responsible for finding and developing a customer base.
Joe, a transportation specialist, had broad expertise in sifting out the many local and
state laws affecting the fledgling company.
And Bob, a CPA, oversaw the financial and administrative responsibilities.
From the start the corporation prospered.
The business grew to surrounding states and beyond.
Recognizing that their successful formula was a result of the unique contribution each
owner made, the three wasted little time in putting a business buy‐sell agreement, fully
funded with life insurance, in place.
In time the company's fair market value climbed to 12 million dollars.
Recognizing that their original shares were now worth 4 million dollars each, the owners
continued to add life insurance protection reflecting the business's growth.
And when Joe died unexpectedly, the buy‐sell agreement sprang into action.
Here's what happened.
The agreement had been structured so that the corporation owned life insurance on each
owner in equal amounts, with death benefits of four million dollars each or a total of
twelve million dollars.
When Joe died the business received four million dollars from the policy on his life, immediately,
in cash, tax‐free.
The business used this money to purchase Joe's 100 shares from his family.
The business retired Joe’s stock leaving Ken and Bob as equal co‐owners and fully
compensating Joe's heirs for his part of the business.