A buy sell agreement, also known as a buyout agreement, protects business owners when a co-owner wants to leave the company, and protects the owner who’s leaving. It protects everyone’s interests in cases where a co-owner wants out of the business, to retire, to sell his shares to someone else, goes through a divorce, or dies. The agreement sets the price and terms for a buyout.
In order to make sure that there are still funds available after a co-owner dies, most parties purchase life insurance policies on the other partners. When a co-owner dies, his or her share of the company will pass to the heirs of his or her estate. The business may use the proceeds from the life insurance policy to purchase the interest from the estate. Before the interest of a deceased co-owner can be sold to the company or remaining partners, the deceased’s estate must agree to sell.
**Note: when a sole proprietor dies, since there are no partners, a key employee is the buyer or successor.
There are several benefits in having a buy and sell agreement:
- It guarantees heirs a buyer for assets they may not necessarily know how to manage.
- It provides heirs with money to pay the estate’s debt, expenses, and taxes.
- The other owners are assured that the deceased’s interest will not pass to someone unsuitable or an unwanted third party.
- The business can continue and therefore customers, employees, and creditors are assured.
- The transfer of wealth, ownership, and management is done in an orderly way; smooth transition.
- Provides a method of funding the buy-out of a withdrawing or deceased owner’s interest and establishes the terms for the payment of the purchase price.
If you feel as though a buy-sell agreement is something you may need, please contact us to schedule a consultation. 786-837-6787, or email us info@epgdlaw.com.
