How is a business valued for a buy-sell agreement?

Common methods include a fixed value updated yearly, a formula based on earnings, or an independent valuation at the time of the event. The agreement specifies which.

Can the corporation pay the insurance premiums?

Yes, the corporation can own and pay for the policies. The premiums aren't deductible, but the structure often has tax advantages at payout through the capital dividend account. Your accountant will confirm the right ownership.

If my business partner died, what happens to their share, and do we need insurance for that?

By Reynolds Edokpayi, Zenith Advisory Inc., Saskatoon · Updated October 2026 · 5 min read

Short answer: Without a plan, their share passes to their estate, which usually means their spouse becomes your business partner, or demands to be bought out at a moment when the business can least afford it. A buy-sell agreement sets the price and the process in advance, and life insurance on each partner provides the cash to pay it. Key-person insurance separately gives the business money to survive the loss.

The problem, concretely

Two partners each own 50% of a company worth $2 million. One dies. Their 50% is now owned by their spouse, who has never run the business, needs income, and may want $1 million for the shares. The surviving partner doesn't have $1 million. Banks don't lend against a business that just lost half its leadership. Everyone is grieving. That's the situation a buy-sell agreement prevents.

What a buy-sell agreement does

Sets how the business is valued
Obliges the surviving owner(s) to buy, and the estate to sell
Sets the timeline and terms
Often covers disability and retirement as well as death

Your lawyer drafts it. Without funding, though, it's a promise with no money behind it.

Funding it with insurance

Each partner is insured for the value of their share. When one dies, the policy pays out and the money buys the shares from the estate. The family gets fair value in cash, promptly; the survivor keeps the business without debt. The policies can be owned by the partners personally or by the corporation, and the structure has tax consequences (including, when corporately owned, the ability to pay out tax-free through the capital dividend account), so it's designed with your accountant.

Key-person insurance is a different thing

This insures the business itself against losing someone it can't run without: an owner, a lead surgeon in a clinic, the salesperson with all the relationships. The payout goes to the company to cover lost revenue, recruiting, and keeping the lights on while it recovers. Many businesses need both.

And disability

A partner who can't work for two years is often a harder problem than one who dies, because they still own their share and still need income. Disability buy-out coverage and personal disability insurance for each owner address that.

Where to start

If you have a partner and no signed, funded agreement, this is the most important unfinished item in your business. We work with your lawyer and accountant to put it in place.

Want this worked out for your numbers? We'll look at your corporation with your accountant and show you what to do with the money inside it.

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