Is the shareholder agreement actually funded?
The agreement determines what should happen. The funding determines whether it can.
The obligation
Funding already identified
Refine the estimate
A gap is a number. The structure around it is the decision.
Important information
This calculator is provided for general educational and illustrative purposes only. It is not a valuation, insurance needs analysis, quotation, recommendation, legal opinion, tax opinion, accounting advice, investment advice, or interpretation of any shareholders' agreement. It does not create an advisor-client, solicitor-client, accountant-client or other professional relationship.
Figures are estimates based solely on values entered by the user. Actual purchase obligations may depend on valuation clauses, discounts or premiums, shareholder loans, payment terms, redemption or cross-purchase mechanics, corporate law, tax law, policy ownership, beneficiary designations, adjusted cost basis, capital dividend account calculations, financing terms and other facts not modelled here. Tax and legal rules may change.
Life insurance is only one potential funding source. Any insurance recommendation should follow an individual needs-based analysis and consideration of available alternatives, product terms, costs, guarantees, exclusions, risks and the client's ability to maintain coverage. Availability and pricing are subject to underwriting and insurer approval.
Where tax, accounting or legal matters are involved, Sheldrake Group works alongside the client's qualified professional advisers. Zachary Sikorski is licensed to provide life and accident & sickness insurance in the Province of Ontario. Insurance products and services are provided through Sheldrake Group Inc. O/A Sheldrake Group, licensed to transact insurance in Ontario only.
A shareholders' agreement and a funding plan are not the same thing.
A shareholders' agreement may establish what happens when an owner dies: who buys the shares, how value is determined, when payment is due, and what rights the surviving owners and the estate have. It does not, by itself, create the cash required to complete the transaction.
This calculator estimates the capital requirement using the business value, the selected shareholder's ownership interest and any additional obligations you enter. It then compares that requirement with funding already identified.
Whether the resources entered appear sufficient to meet the estimated purchase obligation, and the size of any remaining gap.
Which buy-sell structure is legally or tax-efficient, who should own a policy, what insurance product is appropriate, or whether insurance should fund all or any part of the gap.
A funding gap may ultimately be addressed through some combination of life insurance, corporate liquidity, borrowing, installment payments, a promissory note, or another arrangement permitted by the governing agreement. The appropriate structure depends on the agreement, share ownership, corporate and personal tax circumstances, insurability, financing availability and the objectives of the shareholders and their families.
Where a private corporation owns life insurance and is entitled to the death proceeds, Canadian tax rules may permit an amount related to the net life-insurance proceeds to be added to the corporation's capital dividend account. The amount is not necessarily the full policy proceeds and depends on the policy's adjusted cost basis and other statutory rules. Any capital dividend requires the appropriate corporate and tax steps. This calculator deliberately does not estimate a CDA balance or tax outcome.
- Canada Revenue Agency, Income Tax Folio S3-F2-C1, Capital Dividends, including the treatment of life-insurance policy proceeds in the capital dividend account.
- Income Tax Act (Canada), subsection 89(1), definition of "capital dividend account," and subsection 83(2), capital-dividend election framework.
- Canada Revenue Agency, Form T2054 — Election for a Capital Dividend Under Subsection 83(2).
- Financial Services Regulatory Authority of Ontario, Working with a life & health insurance agent or company, including financial-needs analysis and needs-based recommendations.
- The actual shareholders' agreement, corporate records, valuation work and advice of the client's qualified legal and tax advisers control over any illustration produced by this tool.