Business Continuation
Key Man Insurance
In the startup space, one could argue that the most important asset a startup has is its team. Even more important than a great idea or concept, key members of a team can represent the backbone of a company, be it from a technical standpoint, a key sales person or the founder that holds the whole thing together. Sometimes a company has those one or two people that without them, the company is going to be in trouble.
Key Man insurance is put in place by a company on such key people. This is done in the form of either life or disability insurance. Key Man Insurance provides coverage for a company against financial hardship in the event of the death or disability of a key person.
A common trigger for Key Man Insurance can take place during a funding phase. Key man coverage can be a sticking point if a VC recognizes certain individuals as key to an organization. Even if that isn’t a trigger, companies need to recognize these risks in protecting themselves.
Buy/Sell Arrangements
A financial pre-nup if you will between the owners of a company. Such an agreement is a legally binding document that lays out the groundwork for the dissolution of an owner’s stake in a company, often to the other owner(s). Most arrangements take into account incidences such as death or disability by using insurance to guarantee that the proceeds will be available and disseminated according to the buy/sell agreement.
In situations such as death or disability, the issues are quite important. If a company owner passed away and left their ownership stake to an estate or next of kin, your next partner could be a spouse or child. In the event of a disability, if an owner simply cannot take on the responsibilities they once did, other partners will be forced exhaust company resources while the disabled owner maintains his or her stake and position.
Buy/Sell agreements can become quite complex and can involve a many moving parts. Get the right advice the first time.