A buy-sell agreement is an agreement between co-owners of a business that governs what happens if a co-owner dies or leaves the business. No business plan is complete without a shareholders’ or partnership agreement containing buy/sell provisions that allow for the orderly transfer of business interests upon retirement, disability or death.
These plans, and the resulting agreements, are designed to provide for the smooth transition of your business by satisfying the needs of employees and creditors, while maintaining the value of the business for the purchaser.
A buy/sell agreement solves the productivity and management problems of unexpected injury, illness, or death of a business partner. You and your partner(s) agree to a set of events that would trigger the sale, at fair market price, of the leaving partner’s share to the remaining partner(s). This would keep ownership of the business in the hands of trusted and familiar people while ending any obligations the business had to the leaving partner. It also ensures that the leaving partner receives fair compensation for his or her former share of the business.
There are a number of issues involved including whether the agreements are funded with corporate-owned or personally-owned life or disability insurance? What are the tax consequences of the options? What is the best alternative for funding buy-out obligations at retirement?
Reeves Financial Services can help you to answer those questions. We will provide you with tools that can help estimate the fair market value of a business and then proceed to analyze the alternative methods of funding a buy/sell agreement. While not a substitute for a business valuation performed by a Certified Business Valuator, it can be used as a starting point. Our team will also be able to provide you with sample agreements that can be reviewed by your own legal advisors when drafting an agreement specifically suited to your situation.
