Why a Buy-Sell Agreement is Your Best Business Partner

Buy-Sell Agreement

We’re In This Together Forever, Right?

Despite the odds of something going amiss, many of us enter into business relationships much as we enter our personal ones—full of optimism and blinded by a shared affinity. We’re partners for life, so what could possibly divide us? At this point it’s hard to imagine a day when such a perfect union might start to crumble. But that day does sometimes come. That’s why there’s a special, and often overlooked, planning tool that should be shared by any partners in business together:

  • The Buy-Sell Agreement

If your happy union doesn’t last, a buy-sell agreement spells out, in advance, what will happen to the business you own together. Much like a prenuptial agreement looks ahead to the unthinkable dissolution of a marriage, a buy-sell agreement is a premarital contract for business partners, a kind of “business will.” It’s not only important to set up this type of agreement between partners, but to plan for the funding mechanism.

  • Contrary to popular belief, buy-sell agreements are not just about buying and selling companies.

Instead, they’re binding contracts between co-owners of a business. They govern what happens when a partner dies, suffers a disability, divorces, files bankruptcy, commits an act of fraud, or voluntarily or involuntarily retires. They also spell out what transpires when an owner wants to leave, a new owner wants to join, or an outside third party makes an offer to buy the business. Without a properly drafted buy-sell agreement, that departing partner’s spouse or extended family member will be your new partner. Suddenly, there’s trouble in paradise.

  • Here’s Where the Buy-Sell Comes In…

A buy-sell agreement arranges for a smooth transition of business shares to your partner(s) if you become disabled or pass away unexpectedly. It takes care of transferring each departing member’s portion of ownership to the surviving partner(s). To make sure this happens, a buy-sell contract requires the transfer of values (funding) that should be equivalent to the value of each partner’s ownership in the company.

The simplest method to ensure that adequate funding is available for the transfer of ownership is by having a Life Insurance and/or Disability Buyout Policy specifically designed for buy-sell agreements.

  • The Life Insurance / Disability Buyout Policy Advantage

This line of coverage can also function as an additional benefit for the retention of future key employees buying into the business (think business succession). By failing to have a plan in place, a business could be crippled with litigation, a drain on assets and cash flow, large payouts and business interruption. A buy-sell contract simply makes good business sense almost anytime partners are involved.

Over my 20 years in the planning field, I’ve often discussed this concept with various business owners. With a growing mobile work force, shifts in family dynamics, frequent job and city changes, and private equity in-flows, today’s need for buy-sell agreements is greater than ever.

At Oswald Companies, we can help evaluate and analyze your current buy-sell agreement, review coverage, and help insure that your business stays intact and flourishing even if your partnership doesn’t.

For more information, contact:

Chuck ScrafanoChuck Scrafano is a Sales Executive in Oswald Companies’ Life Insurance division. He has over 25 years of experience in this area. In addition to extensive knowledge of traditional life insurance products, he is also skilled in the fields of Private Pension Planning and Long-Term Care. Chuck takes a holistic approach to planning and strives to stay on top of and adapt to trends in the industry. He strongly advocates the need for periodically reviewing coverage to match it with a client’s changing needs.

Connect with Chuck on LinkedIn.

 


Note: This communication is for informational purposes only. Although every reasonable effort is made to present current and accurate information, Oswald makes no guarantees of any kind and cannot be held liable for any outdated or incorrect information. View our communications policy.


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