Tips On Putting Together A Buy/Sell Agreement
Any business owner, whether they have partners or not, is taking a huge risk if they do not have a buy/sell agreement in place. Even if the plan is for your business to stop operations after you have passed away, there are still final expenses that will be left to your family if you do not have some sort of agreement in place. A buy/sell agreement is not difficult to construct or expensive, but it can make a huge difference in your life and the life of your family if something should ever happen that affects the operation of your company.
What Is A Buy/Sell Agreement?
A buy/sell agreement dictates what happens if any owner associated with your business passes away or becomes unable to work. It also protects the interested parties if a business partner should get divorced and that partner is forced into a buyout situation.
There are many scenarios where a buy/sell agreement becomes a critical business vehicle. If your business partner dies, then you would have to buy out his family to keep the business. If you pass away, your business partner would be faced with the same issue. If you or your business partner becomes disabled, then a buy/sell agreement would help to fund the business to keep it going, pay for the disabled partner’s expenses and fund the buyout of the other partner. Any business that does not have a buy/sell agreement in place is taking a huge and unnecessary risk.
Funding A Buy/Sell Agreement
A buy/sell agreement can sometimes address the issue of what happens to company funds in the event of a crisis, but the majority of the money that is distributed through a buy/sell agreement is supplied by insurance. There is life insurance taken out on each partner to fund buyouts in the event of a partner’s passing, there is disability insurance to pay for any medical issues and there is business insurance to fund ongoing operations in the event that a key employee has to leave the company.
It is always best to have a buy/sell agreement put together by a legal and insurance expert to make sure that everything is set up properly. A finalized buy/sell agreement will have all of the necessary coverage in place and that coverage can only be triggered by events outlined in the agreement. It is a comprehensive piece of business insurance that every company must have.
Life Without A Buy/Sell Agreement
A sole proprietor who knows that his business will end when he passes away may decide to not put together a buy/sell agreement. When that business owner passes away, his family will be forced to pay any debts and taxes the business owes and make decisions on what will happen to the business. With a buy/sell agreement, there is money in place to handle those debts and the final wishes of the business owner are well documented.
This was a simple example of a basic business arrangement being thrown into relative chaos without a buy/sell agreement. If you try to imagine more complicated business arrangements without such protection, you start to understand why buy/sell agreements are so important.
A good business professional takes the steps necessary to plan for any potential contingency. No one wants to think about the possibility of a business owner passing away or becoming disabled, but those things can happen and a buy/sell agreement can make the entire process easier for everyone.