In Part 1 we spoke about the importance of planning for the loss of a key employee from the business, making certain the employee/s responsible for profitability can be replaced due to unexpected loss due to death or disability.
In Part 2 we are going to look into what happens with a partnership if there’s an unexpected loss of one of the partners, how is he operation going to continue? Enter The Buy Sell Agreement.
A buy–sell agreement, also known as a buyout agreement, is a legally binding agreement between co-owners of a business that governs the situation if a co-owner dies or is otherwise forced to leave the business, or chooses to leave the business.
Business owners operating as a partnership and are concerned about how the death or disability 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, eliminating any doubts about the continuation of the business. You can also avoid the dilemma of being in business with your partner’s survivors, whom may not have the same goals for the future of the business or may not be willing or capable to be productive towards profitability, but always happy to access the business acccount. The funds provided as a result of the proactive planning in a buy–sell agreement, between co-owners of a business can provide a benefit for the deceased partner’s family. The benefit from their point of view, is that of course they may be able to be qiuckly compensated with much needed cash to pay off debt, or to ensure the continuation of the family’s standard of living.
There are also costs and possible disadvantages involved in establishing a buy-sell agreement. One such disadvantage is that the agreement typically limits your freedom to sell the business to outside parties. If you think that a buy-sell agreement might benefit you and your business, consult your attorney and financial professional about the pros and cons of setting one up.
Information provided has been prepared from sources and data we believe to be accurate, but we make no representation as to its accuracy or completeness. Data and information is provided for informational purposes only, and is not intended for solicitation or trading purposes. Please consult your tax and legal advisors regarding your individual situation.