If You Own a Business, You Need a Buy-Sell Agreement.
A buy-sell agreement is a contract created by business owners to help ensure that if one of the members passes away or becomes disabled or retires then that person’s ownership interest will be sold to the remaining partners or to the company. A life insurance buy-sell agreement requires the business owners to carry life insurance that benefits each other or the business, so that the proceeds of the life insurance policy will be available to pay for the deceased member’s ownership interest. Life insurance-backed buy-sell agreements help ensure that stable ownership continues even if one business owner passes away. Discover how to use these agreements in your business. Here are some of the things to consider when drafting
The triggering events: The buy-sell agreement should specify the events that will trigger the purchase of the shares, such as death, disability, or retirement.
- The purchase price: The buy-sell agreement should specify the price that will be paid for the shares. This price can be determined by a variety of factors, such as the fair market value of the shares, the book value of the shares, or the value of the business as a whole.
- The payment terms: The buy-sell agreement should specify the terms of payment for the shares. This could be a lump-sum payment, installment payments, or a combination of both.
- The funding mechanism: The buy-sell agreement should specify how the purchase price will be funded. This could be through life insurance, a bank loan, or a combination of both.
- The dispute resolution process: The buy-sell agreement should specify the process for resolving any disputes that may arise. This could be through mediation, arbitration, or litigation.