Key person planning is the set of legal and financial arrangements that protect a business when a critical owner or employee can no longer work — due to death, disability, or incapacity.
Most Georgia business owners understand that their business depends on certain people. Very few have documented what happens if those people are gone.
Who Is a Key Person?
A key person is anyone whose absence would materially harm the business. That typically includes:
- The owner or founder
- A co-owner who controls a major client relationship
- A technical expert whose knowledge can’t be quickly replaced
- A sales leader responsible for a disproportionate share of revenue
For small businesses, the owner is almost always the key person. In that case, key person planning is largely personal estate planning: ensuring authority transfers to the right person, that the business can continue operating, and that the family is financially protected.
The Two Problems Key Person Planning Solves
Problem 1: Business continuity. When a key person is suddenly unavailable, who has authority to run the business? Who can sign contracts, access bank accounts, make payroll? If the answer isn’t documented and legally supported, the business can grind to a halt while the family deals with a medical crisis or a probate proceeding.
Problem 2: Financial protection. The loss of a key person — especially a key salesperson or technical expert — can significantly reduce business revenue and value. Key person life insurance provides cash to cover the cost of recruiting and training a replacement, offset lost revenue during the transition, or fund a buyout if a co-owner’s family elects to sell.
The Legal Documents That Support Key Person Planning
Revocable living trust: If the business owner holds their LLC interests or corporate shares in a trust, the successor trustee steps in immediately at death or incapacity. This is the most direct solution to the authority problem.
Durable financial power of attorney: If the business owner becomes incapacitated without a trust, a power of attorney gives an agent authority to manage business interests and sign documents. This is a stopgap — a trust is a more complete solution.
Updated operating agreement or bylaws: The governing document of the business needs to address what happens when a key owner can’t act. It should designate successor management and clarify the process for admitting a new member or officer.
Buy-sell agreement: If there are co-owners, a buy-sell agreement funded with life insurance ensures the surviving owners can buy out the departing owner’s family without a dispute over price or funding.
Key Person Life Insurance: What It Is and What It Isn’t
Key person life insurance is a policy owned by the business on the life of a key person. The business pays the premiums and is the beneficiary. If the key person dies, the business receives the death benefit.
Key person insurance is not the same as a buy-sell agreement. The buy-sell agreement is the legal contract; the insurance is the funding mechanism. You need both — the insurance doesn’t create the obligation to sell, and the buy-sell agreement without insurance may create an obligation the buyer can’t fund.
Key person insurance is also taxed differently depending on how it’s structured. A CPA should review the structure before the policy is purchased.
What Most Georgia Business Owners Are Missing
Most Georgia business owners have no key person plan at all. They may have a life insurance policy, but no legal documents that address authority, succession, or the mechanics of a buyout. The insurance pays a lump sum, but without a buy-sell agreement and an updated operating agreement, the surviving family and co-owners still have no clear roadmap.
Others have documents that haven’t been updated in years. The operating agreement was drafted at formation. The buy-sell agreement was signed when the business was worth a fraction of its current value. The insurance policy hasn’t been reviewed since the business doubled in revenue.
Next Steps
The Key Person Planning page explains what a complete key person plan includes. If you want to assess your current situation, book a Family Protection Audit — a free 15-minute call to review what you have and identify the gaps.