Why Does My Business Need A Buy-Sell Agreement?

Owning a business is a risky endeavor. You have to learn to embrace and prepare for the unknown as best you can. One way to do this, particularly if your business is co-owned, is through the use of a buy-sell agreement. This agreement can protect your business from some of life’s uncertainties and help you feel confident that you’re prepared for the future.

Setting Prices In Advance
Any co-owned business should have a buy-sell agreement. These agreements, frequently funded through life insurance, provide a contingency plan for the death of a business partner or co-owner. One of the benefits of this is that you are agreeing to a sale price prior to a situation where a portion of the business would need to be sold. So, if you or your partner were to pass away, the buy-sell agreement guarantees that the heirs will receive acceptable compensation for their portion of the business, and makes the process of gaining the funds for the buyout much simpler. Without this agreement, the co-owner could be forced to reach into their own pocket in order to compensate the deceased’s heirs, and if they can’t afford the buyout the heirs may have to sell to someone else.

Protection For The Future Of Your Business
If your business partner were to pass away unexpectedly, what happens to their portion of the business? Without having a plan in place, you have very little control over who their share goes to. A buy-sell agreement guarantees that the business interest will not pass to someone that is unable, or unwilling, to perform the duties of the deceased co-owner. It also avoids any conflicts that would follow from attempting to buy-out an unsuitable heir’s interest in the company. If there isn’t a plan in place that allows the remaining partner to buyout their co-owner’s share of the business, then the heirs could choose to retain it or sell it to someone else. This leaves the business in a position where they no longer have control over half of the company that they worked hard to build.

The death of a business partner is an unfortunate event with very real repercussions for your business. By creating a buy-sell agreement, you’re ensuring that whatever happens to the partners, the business will be in a position of stability, which provides for the futures of the business, its employees, and your heirs.

At Flagler Financial, we understand the importance of planning for the future of your business and the people that it affects. Please contact us to learn more about buy-sell agreements and how your business partnership could benefit from the creation of one.