Buy/Sell Agreements

As your business grows and thrives you need to consider planning for the future.

 

As a successful business owner, ask yourself these questions:

  • How will the business be passed on?

  • What happens if a key person passes away?

  • What happens if an owner or key employee can’t work anymore?

  • What happens when an owner retires?


Buy-Sell Agreements

A Buy Sell agreement is a legal document between the partners of any business, whether it’s a partnership, LLC or is fully incorporated.  It simply lays out how the business will be passed on to surviving partners in the event that one of the partners passes away, retires or becomes disabled.   By having a pre-arranged agreement in place you can avoid costly litigation, animosity and confusion, all of which can end the business permanently.

The Buy-Sell Agreement should be drawn up by an experienced attorney.  The most efficient way to fund the agreement is with the use of life insurance.  A knowledgeable financial advisor should work in conjunction with your attorney and other professionals to determine the proper structure and funding for the agreement.


There are two types of Buy-Sell Agreements to Consider:

Buy-Sell Cross Purchase

  • Each owner obtains and owns insurance on the other owners
  • The proceeds from the insurance are used to buy the business interest in accordance with the buy-sell agreement.
  • The life Insurance proceeds are received income tax-free
  • Premiums are not a deductible expense
  • Each owner pays for the policies on the other owners

Buy-Sell Entity Purchase

  • The business obtains and owns insurance on the owners
  • The proceeds from the insurance are used to buy the business interest in accordance with the buy-sell agreement
  • The life insurance proceeds are received income tax-free
  • Premiums are not deductible to the individual owners
  • Premiums may be deductible as an expense to the business