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Buy Sell Agreements

Buy Sell Agreement

What would happen if a partner in your business was to get sick, become disabled, leave the business or die? The death, disablement, traumatic illness, resignation or retirement of a co-owner can have a dramatic effect
on a business.

Some of the issues that can arise are:
• The terminating business co-owner (or, in the case of death, his or her estate) may make demands on the business for it to be wound up or to be paid out his or her interest in the business or for loan account balances to be repaid;
• Alternatively the family as the beneficiary of the estate may insist on immediate and direct involvement in the control and operation of the business but may not have the necessary expertise;
• The estate of a deceased business co-owner may be forced by circumstances to sell his or her interest in the business to an outside buyer;
• In the case of a traumatic illness (e.g. heart attack), there may be uncertainty over the likelihood of the business co-owner recovering or ever returning to work;
• The continuing business co-owners may be required to split profits with a non-working co-owner.

The Solution
An agreement can deal with both asset (buy/sell) and liability (debt reduction/guarantor protection and key person) issues should any of the business co-owners unexpectedly suffer a major illness, injury or death.

If a written business succession agreement is in place and is triggered according to the terms of the agreement, the business insurance proceeds can provide:
• Certainty about what happens and when;
• Stability to the business, the continuing business coowners and to employees;
• Funds for the continuing business co-owners to buy out the terminating business co-owner’s share without having to borrow additional funds;
• A fair cash price to the terminating business coowner or his or her estate;
• A sense of security to financiers, suppliers, staff and customers;
• Preservation of the value of the business and a possible strengthening of it.