There is considerable planning that goes into running a business. This is especially true if there is more than one partner involved in the business. It is important to have a clear understanding and agreement if something should happen to one of the owners. According to David N. Barkhausen, “Buy-sell agreements among co-owners or present and future owners of a closely-held business are intended to assure the smooth future transition of its ownership. They provide the mechanism, and, if properly funded, the means, to effect a change in control and a transfer of interests upon the occurrence of a number of events, beginning with death, disability and retirement.”
Here are some of the benefits of a buy-sell agreement:
-Provides recovery for partners and heirs
-Provides for transfer of ownership and wealth
-Creates fair and market value exchange of ownership
What can be a trigger for a buy-sell agreement?
-Death, disability, retirement, divorce, loss of license, termination, and voluntary transfer of ownership.
How is a buy-sell agreement funded?
Any buy-sell agreement requires a decision regarding the type of insurance policy to purchase. The initial choice is between term and whole life insurance. The ability to maintain life insurance throughout a shareholder’s life is important. Of course there are other methods of funding including; cash, borrowing, and stock, but the most common is insurance.
We recommend you consult with an attorney and tax professional as part of your planning process.
Roussel Insurance & Financial Services is a recognized leader in the insurance industry. We offer highly competitive insurance rates for both business owners and individual services. With 32 years of experience, we continue to offer our clients exceptional service.
This information is intended for the client, individual or entity to which it is addressed. These articles contain concepts and opinions, and are not intended to represent the consensus of the insurance or risk community, nor to provide professional legal or tax advice. Please seek professional legal or tax counsel before making any decisions. The information provided does not change or modify any insurance policy, only the actual terms of the in-force policies will govern claim settlements.