Business Buy/Sell Agreements
You and your partner(s) have devoted a lifetime of blood, sweat and tears building a successful business, and you hope that it will be a legacy for your spouse and children for years (or even generations) to come. Your partner(s) probably feel the same way, but have you really thought and planned ahead? Will your partner’s spouse or children be suitable business partners if he passes away before you? If not, how do you replace your deceased partner, keep the business running and pay a fair amount to his family for his share of the business all at the same time?
The absolute worst time to try to figure all of that out is in the wake of a sudden death when emotions are high, time is at a premium and money is short. How do you even determine what constitutes a deceased partner’s family’s “fair share” of the business if you have not established an agreed upon method of business valuation in advance? Assuming valuation is not an issue, where do you find the money to pay for a 25%, 33% or 50% share to a deceased partner’s family? Does the “business” pay the family or do the surviving partners do so? If payments must be made over time, what is an appropriate term? Will timed payments require the payment of annual interest? At what rate?
Because these issues are “tricky” and not fun to consider, many smart, hardworking business people simply choose to ignore them or put off dealing with them. They would never engage in such poor business practices in other aspects of their business, and this one area of neglect could reverse a lifetime of hard work and achievement!
Fortunately, a well- crafted Buy Sell Agreement drafted by an experienced practitioner can resolve all of the foregoing issues. You don’t have to “reinvent the wheel”. You just need to work with someone who has experience in the field and can educate you and you partner(s) concerning the options available to you. For example, with advanced planning, it may even be possible to fully fund such a transition by way of key man or cross purchase insurance.