Since clients tend to have a number of questions regarding buy-sell agreements, we thought the topic would merit another post on our blog, this time focusing on how a buy-sell agreement is beneficial to a business owner.
Why should you consider a buy-sell agreement for your business?
As a prudent business owner, you need to think about how your business would be handled in the event that you are to pass away or become incapacitated.
If you have business partners, they'll want to protect themselves from any disruption in business operations, entity dissolution, liquidation of the business, or any other adverse consequences that could come from your death.
If you have loved ones, you'll want to make sure that they are taken care of financially after your passing.
These are all valid concerns that you, your business partners, and your family have, and a buy-sell agreement can help to alleviate this anxiety.
How does a buy-sell agreement work?
A buy-sell agreement, also referred to a business continuation plan, is a legally binding contract that clearly outlines the conditions for when your business can be sold, to whom is can be sold to, and the price for the ownership interests.
Typically, a buy-sell agreement will allow either the business entity or the other business partners to buy out the departing partner's interests in the business at the predetermined price outlined in the agreement.
By having a buy-sell agreement in place, you and your business partners can significantly minimize any surprises that could interfere with livelihood of your business after you are gone.
What are some scenarios where a buy-sell agreement could be triggered?
While these conditions will be clearly outlined in your buy-sell agreement, here are a few examples of when a buy-sell agreement could be triggered:
- Transfer of business ownership
- Criminal conviction
- Loss of professional license
How is a buy-sell agreement funded?
There are many options to fund a buy-sell agreement that extend beyond life insurance. Here are a few funding methods to consider:
- Installment sale
- Self-cancelling installment note
- Sale leaseback
- Deferred compensation
- Life insurance
There are obviously a number of factors that will come into play as you choose which funding method would work best for your buy-sell agreement, and our experienced team at Summerlin-Roberts can help walk you through these factors to find a solution that best meets your needs and budget.
Please contact us at Summerlin-Roberts to learn more about buy-sell agreements and how this can be advantageous and prudent for your business.