page loader

Business Buy-Sell Agreements

Two or more individuals form a business. The owners obviously like each other and get along. What happens, though, if one owner dies, becomes disabled, or files bankruptcy? These are contingencies the owners are probably not considering when starting a business. The way to resolve these issues before they arise and while everyone is still in the agreement is simple. Prepare and execute business buy-sell agreements that outline how these problems are handled. These agreements are for anyone who has partners in a business. They can be executed at any time, but need to be done before any problems appear.

These business buy-sell agreements work like any contract. All parties sit down and negotiate the issues. They then take their agreement to a business lawyer who prepares the agreement in the proper legal form. The lawyer may also raise issues the owners had not considered.

A key issue in any negotiation is the death of a partner. Most partners do not want to continue the business with their partner’s heirs. Business buy-sell agreements solve this problem. It details the valuation of the deceased partner’s share. The money to pay the heirs comes from life insurance. Each partner has life insurance in an amount agreed upon. The benefits can be paid into the company so they can be used to buy out the heirs. The agreement requires the heirs to sell at the valuation amount. LIfe insurance allows the heirs to receive their money, and the surviving partner to continue the business.

There are two major benefits of the agreement. One is the peaceful continuation of the business. The second is the avoidance of lawsuits if there was not a plan. It is important for the heirs of the deceased partner to receive fair compensation. The compensation formula, having been determined in advance and approved by the deceased partner in the business buy-sell agreement, is not in dispute. The heirs can feel assured that they are receiving what the deceased wanted them to have as his share of the business. All partners and heirs go forward without the expense of legal action.