Is your business at risk? You've been in business with your partner for 12 years. If something happened to your partner tonight would you be forced to become partners with the heirs? Or, maybe you’re a sole proprietor planning for your heirs to sell your company to a key-employee at your death but they can’t agree on the sale terms, appropriate pricing, and/or don’t have the available funds when needed? If you do not have a properly drafted and funded “Buy-Sell Agreement” in place, you are taking that risk…every day!
Small business owners should plan effectively to determine what happens to their business in the event of permanent disability or death of the owner. Proper planning can lead to an orderly transfer of business interests in a way that satisfies the goals of all parties.
What is a Buy-Sell Agreement?
Simply stated, a properly drafted and funded Buy/Sell Agreement accomplishes the following goals:
- Establishes the events that trigger a buyout, such as death of an owner
- Removes uncertainty by protecting the interests of all parties
- Identifies the future buyers
- Predetermines the sales price of the business through an agreed upon valuation method
- Provides the ready cash to ensure the business is sold at a fair price
How do I set up a Buy-Sell Agreement?
Your attorney, CPA, and life insurance professional can be extremely helpful in this area. While there are document templates that cover the broad issues, the specific terms of your agreement must to be tailored to meet the objectives of you and the intended buyers. A short conversation with your attorney can help you determine how complex your agreement needs to be.
How do I fund the agreement?
The best contractual agreement, by itself, may not be worth the paper it’s written on without the cash required to implement the plan! In the case of a business owner’s premature death, life insurance is generally the best way to provide timely access to tax-free proceeds exactly when needed.