If You Own Or Co-Own A Business, You Need A Buy-Sell Agreement
September 18, 2016
By: Kirk Stoyles, CLU, Director, Cal LeGrow Financial
No matter how big or small your business is, you need to protect yourself and your loved ones. If you have been in business for years and haven’t really thought about a buy-sell agreement, then it’s time that you did. Over the years, I’ve met far too many business owners without a pan in place. These clients will all tell you not only that having a plan is important but also that they’ve never had the time to put one together.
Being unprepared for such events as premature death, disability, or incapacity could erase all that you have worked a lifetime for and make things especially difficult for the family members that must sort things out.
There are various events in your life where you could benefit form a buy-sell agreement. Therefore it is essential for you to have one in place and modify it as your circumstances change. For the purposes of this article, I will primarily focus on the death of as shareholder as the triggering event, but there are other such events that I will also touch on.
If you have not developed formal documentation that outlines what will occur upon your death as a shareholder, you could be leaving your family and business parents exposed. Without a proper buy-sell agreement in place, other shareholders will be faced with four main options:
- Close the business
- Continue with a new owner
- Sell their shares of the company
- Purchase the shares from the deceased owner’s estate
The ideal scenario would involve buying the shares from the estate of the deceased shareholder. This would require funding and the best solution for this is almost always a life insurance policy. This guarantees that the money will be available when needed.
In order for this ideal scenario to happen, the option of selling shares to shareholders must be outlined in a proper buy-sell agreement, designed and implemented by a trusted financial adviser. Your adviser would work with you and other professionals to ensure both your current and future needs have been addressed in the agreement.
“Being unprepared for such events as premature death, disability, or incapacity could erase all that you have worked a lifetime for…”
A buy-sell agreement can also address other important issues arising from events such as divorce, disability, critical illness, retirement or withdrawal, or bankruptcy.
Whether you have a small, medium, or large business, it is imperative that you have a buy-sell agreement in place. Business is not only about success but also about succession and a proper buy-sell agreement will always be taken care of when the unexpected happens.