Buy-Sell Agreements
A Career Lost, but Not a Way of Life
When something unexpected happens and a business owner is no longer with the company, several difficult questions arise:
Who will purchase the business?
What is a fair price?
Where will the funds come from?
How long will the sale take?
Without a business succession plan, the death of an owner can create problems for the business owner’s heirs and the business itself. In fact, many businesses do not survive upon the death, disability, or retirement of one the business owners. It’s important to develop a plan while the business is running well, rather than waiting until it’s too late.
Controlling Ownership
A buy-sell agreement is an agreement between owners that allows you or the business to buy out a co-owner’s share based on several triggering events like retirement, death, bankruptcy, disability, divorce or selling the business to a third party. You can enter into a buy-sell agreement with your co-owners at any time, but it often makes sense to do so shortly after the business is formed and when new owners are brought in.
Buy-Sell Agreements Using Life Insurance
A buy/sell agreement can help ensure your business remains intact and your family has financial security. There are several strategies that allow you to use life insurance to help fund a buy-sell agreement.
Here are the advantages of having a buy-sell agreement:
- It minimizes the possibility that the business may fall into the hands of outsiders
- It can help establish a value for the business and for estate tax purposes
- It creates a market for the business by providing the deceased owner’s estate with a purchaser of the deceased’s business interest
- It takes an otherwise liquid asset and creates immediate liquidity for the deceased’s heirs
Source: Mutual of Omaha
The information presented is general in nature. It has been obtained from sources believed to be reliable, but no warranty is made as to its accuracy, completeness, or timeliness. This information is not intended as, and should not be construed as legal, tax or investment advice, or a legal opinion.