How can business owners reduce financial risk?

• Personal guarantees make business debt a personal estate liability.
• A shareholders' agreement without funding is a plan without a payment source.
• Owner disability often damages a business faster than owner death.
• Corporate structure influences tax, creditor exposure and succession flexibility.
• Insurance is one tool among several; it does not fix an unprofitable business.

List the people, relationships and contracts the business cannot operate without. For most Canadian small businesses, the owner is the key relationship holder, credit signer and operator, which concentrates risk in one person.

A shareholders' agreement should set out what happens on death, disability, departure and dispute, including valuation methodology. Once terms are documented, funding — insurance, sinking fund or financing — can be sized to the obligation.

Corporate-owned insurance, holding company structures, salary versus dividend decisions and estate freezes all interact with tax and family objectives. These decisions should be reviewed with an accountant and lawyer together, since a change in one area affects the others.

• Tax rules for corporate-owned policies and passive investment income are technical and change.
• Valuation clauses that go stale can create disputes at exactly the wrong time.
• Review documents and coverage after major changes in revenue, ownership or debt.

• Corporations — tax information for Canadian businesses — Canada Revenue Agency
• Life and health insurance in Canada — industry resources — CLHIA
• Insurance and financial basics for consumers — Financial Consumer Agency of Canada