Proprietors are the largest growing employment segment today. Proprietors are self employed and not incorporated. The benefits of a proprietorship are the incorporation costs and annual filing and accounting fees. However, proprietors are personally liable for any business debts or claims. At a certain income, many proprietors find that the benefits of incorporation far outweigh the costs.

Proprietors are personally responsible for protecting themselves against liability suits, loss of income because of sickness, accident or death and all the other eventualities, which can crop up and hinder an ongoing income.

Proprietors will want to consider debt repayment in the event of their unexpected death; income replacement to cover their business and daily living expenses; R.S.P.’s for tax savings; and if possible, an exit plan for disposal of your business when you’re ready to retire or if you should die. This will ensure you or your estate receive the best value for your business.

Many professionals - doctors, lawyers, accountants, engineers, etc. are actually partnerships. The partnerships are formed mainly for costs sharing purposes, but also to provide coverage for their practices for vacations or illness, or to possibly to share clients.

Partnerships are similar to Proprietorships in that all income generated is personal, as well as any liability.

Many partnerships are verbal agreements or understandings. Although legal, they leave many opportunities for misunderstandings. Formal written agreements, with terms and responsibilities being fully defined give each partner more security, and an exit plan from the businesses. Often there is a cross purchase element involved where one partner agrees to buy the others business under certain conditions…. disability, retirement, death or just at some specified date. Funding these understandings or agreements gives everyone involved assurances that if or when these events occur, there will be money available to meet these obligations.

Although each partner is personally responsible for any liabilities, in reality all the partners are vulnerable and should be protected.

Depending on your partnership agreement, there could be loans recalls that could be triggered, reserves that need to be paid out, replacement costs for the absent partner, and many other

A limited or incorporated company is an independent entity with shareholders and governed by the many government rules.

The limited company offers many advantages to its owners. It theory it limits the personal liability of the owners both for debts and from lawsuits. However, in reality and corporate loans usually carry a personal guarantee. It also has the potential to save on personal income tax payable if you are not drawing all of the funds out. As well, corporate tax rates are usually lower than personal rates. However, if you draw all income out you will be taxed twice, corporately and personally.

Any business that involves more than one owner should have a buy/sell agreement. This agreement stipulates what will happen under certain conditions in advance of these events happening. The events can include such things as retirement, a sale, when one person wants to get out of the business, a disability of one of the owners, or a death. What the agreement actually says will happen is up to the owners. For example, if one of the owners wants to retire, it can stipulate how much notice time is required, how the retiree will be compensated, over time or lump sum, a formula for establishing the price and time period for payment. The same factors would be included for every eventuality and may have additional clauses, such as a non-compete clause as well, depending on the business.

Buy/Sell agreements can eliminate a lot of problems, hard feelings and law suits in the future if the handling of events are already stipulated and known by all.

The one caution with buy/sell agreements is to also plan for the funding of the conditions. If the business has to continue the income of a disabled partner and hire a replacement, this should be funded to guarantee the business actually has the money to fulfill its obligations.

In many businesses there is someone, possibly you , who has a substantial impact on the financial success of the business and would create a loss if not there. This loss may be in sales, loss of clients, increased administration costs, loss of banking relations or whatever and is often insured. Example, if your top salesperson suddenly became seriously ill, would this affect your sales? Would it be necessary to replace them, at what cost and with what results? What about providing an income for your disabled salesperson? Does your salesperson have savings, or will they come to you for advances for extra costs?

These are some of the reasons and insurable situations that companies consider regarding key people to a business and hence, this is often referred to as “Key Man Insurance”.

Collateral Term Insurance is just what the name implies…insurance purchased to use as collateral for a loan. The trick is to set it up so that it also provides the best tax deductions. I’m providing a link here to the government’s description of what qualifies for deduction for tax purposes, but in simplistic terms the policy must be requested by the bank to support a loan; the amount of deductible premium is the pure cost of term insurance; for the average amount of the line of credit or loan; and the policy is assigned to the bank.

So, if you have collateral term insurance, the bank receives the amount owing, up to the face amount of the policy. This effectively eliminates or decreases the amount of company debt and could be considered as therefore increasing the value of the business. The tax department is still debating this. The deduction for collateral term insurance premiums is also one of the first things an auditor will review, so be sure it's set up correctly.

The key here is to make sure you don’t consider your “assigned policy” as the funding program for your buy/sell agreement as you could end up with a commitment to buyout a shareholder and not have the funds to do so.

Group insurance plans are plans where the risks are shared by a number of different people with a single relationship…. the employer.

Group insurance plans offer a smorgasbord of different benefits to choose from. They can offer just life insurance and accidental death and dismemberment benefits, or a full package of life, accident, weekly income, long-term disability, dental and extended health benefits, or some of these benefits. They can be personalized for the company’s budget to include co-insurance and deductibles on the dental and extended health benefits and integrated with government disability benefits.

It is worth bearing in mind that the dental portion of a group plan is not really insurance, but rather a budgeting program for expected costs. For companies with many employees, these are set up using only the members of the plan, but for smaller companies, the insurance companies “pool” many companies together in order to offer better pricing. So because this is one of the more expensive benefits, monitoring usage and employee turnover is important. If you have a lot of turnover, the costs are more as usually new employees and departing employees will get all necessary and possible dental work done immediately, increasing the expenses incurred by the plan and hence your costs. The same can be said for the extended health benefits.

When considering your first employee group insurance plan it is usually wise to start with a basic plan and add on as you go, rather than start with a full package and then find you have to cut benefits or add deductibles and/or coinsurance.

There are lots of ways to become disabled and there are almost as many different definitions of what constitutes “disabled” in disability policies. And in addition there are huge variations in the kinds of coverage and setups of coverage.

Some policies pay only if you’re totally unable to work. They’re called any occupation contracts…and they’re common in group insurance disability plans. Then there’s the regular occupation contract that pays as long as you’re unable to work at your regular occupation and not gainfully employed elsewhere. And the best…own occupation contracts. Then you add in all the choices…partial disability, future purchase options, cost of living option, and many more and you begin in understand how you really need help choosing and getting the best policy you can.

The second critical area is getting a contract that’s guaranteed renewable and is non-cancellable meaning that you know what you’re going to pay in the future and that the plan can’t be cancelled other than by you or the end of the contract.

If you are self-employed, disability protection will be one of your main focuses. For a business owner, there are two types of coverage, one to provide you with an income, the other to help with the ongoing business expenses (Office Overhead).

Individual disability plans provide more definitive and flexible coverage. Group disability benefits generally pay only if you are totally disabled where individual plans offer many more “disabled” definitions, depending on the coverage. Disabled may mean “unable to perform one or more of the key duties of your job”. On individual contracts you can also add partial disability clauses.

A critical or life threatening illness is frightening for everyone, but for the self-employed who will now have an illness to fight and a business to run and a need for capital it can also be financial ruin.

With today's long wait lists for medical treatment and government cost cutting programs, you may want to go out of country for treatment. This takes capital and critical illness insurance is designed to provide that capital, so that draining the company isn’t one of the choices you may have to make. Critical illness insurance pays a non-taxable lump sum if you are diagnosed with one of many different listed illnesses available in a policy. Each company’s plan covers different illnesses and they all offer a variety of premium terms similar to life insurance…5 year, 10 year, age 75 or 100. So finding one that fits your budget is possible. And don’t forget your key employees. They may end up coming to you for capital in the event they are diagnosed will a critical illness and besides it’s a great benefit to offer you key people!