Business owners often face many challenges as they look to sustain their businesses through various challenges. The loss of a key person, or the retirement or unexpected death of an owner can place an incredible strain on the business, but having a buy-sell agreement in place can protect both the business and the owner’s family. Think of a buy-sell agreement, sometimes called a buyout agreement, as a “business will” of sorts. Essentially, it’s a legal contract which provides stakeholders the option of purchasing the business interests of an owner who, retires, becomes disabled, or passes away. This strategy works in two ways:
Each owner purchases a life insurance policy on each of the owners. When an owner dies, the surviving owner uses the proceeds to purchase the deceased owner’s share of the business.
Each owner creates an agreement with the business for the sale of their ownership interest in the business. In this case, the business typically purchases an insurance policy on the owner, and uses the death benefit to buy the deceased owner’s share from their family.
A buy/sell agreement will give business owners peace of mind knowing that their business will be in capable hands, and that there is an orderly system in place to transfer wealth, ownership, and management. In addition, their families will not be tasked with having to try and operate or sell the business.
As every situation is different, talk to a financial professional prior to implementing a business succession plan such as this. There are multiple strategies and ways to structure a business succession plan, and retirement is too important to not arrange it properly. We are available and happy to assist you in evaluating your retirement needs anytime with a complimentary consultation. Please give our office a call today.