If you’re a business owner and have partners, have you thought about the impact on the business and its operation should one of you die, become permanently disabled or retire?
A funded Buy/Sell agreement can help by ensuring you’re able to purchase your partner’s share of the business, putting to rest any doubt of the business failing and eliminating the uncomfortable dilemma of being in business with your partner’s survivors.
Also known as Business Continuation Agreements or Buyout Agreements, Buy/Sell agreements are transacted after determining the value of the business. Then you, your advisors, and the other parties decide on the best way to fully fund the transaction, and the appropriate triggers for the agreement to come into play. Quite often life insurance is used fund the agreement with most parties purchasing life insurance policies on the other partners. Typical triggering events will include death, disability, and retirement.
According to a 2008 survey, 37% of business owners have heard of Buy/Sell insurance cover, yet only 9% have it.*
*Ross Cameron Research: The Australian Small Business Market for Financial Services, July 2008