When starting a business having a partner brings some obvious benefits over going it alone, but what happens if individuals decide to eventually go their separate ways or one faces a life-changing event or death? A buy-sell agreement can help ensure your business lives on.
A buy-sell agreement is a contract that provides for the future sale of your business interest or for your purchase of a leaving partner’s interest in the business. Under the terms of a buy-sell agreement, the outgoing principal and remaining principals enter into a contract for the transfer of your business interest by you (or your estate) at the occurrence of a specified triggering event. Typical triggering events include death, disability, bankruptcy and retirement.
If you own a business and are concerned about how the death or disablement of a co-owner might affect its operation, a funded buy-sell agreement can help by ensuring that you will be able to purchase your partner’s share, removing any doubts about the continuation of the business.
Covering business costs
Whether your business is structured through a partnership, company or trust, few have effective mechanisms in place for the transfer of equity and/or control if one of the owners is lost to the business due to death, disablement or a critical illness.
In many cases the loss of a business owner from one of these events results in the demise of an otherwise healthy business simply because there was no succession plan and funding agreement in place. A business succession plan incorporating insurance funding protects your investment and ensures the survival of your business should one of the business owners or a key person die, become disabled or suffer a critical illness.