What Happens To Your Business
If Something Happens to You?
Your business is your livelihood. You and your associates have planned, worked hard, and sacrificed to make it successful. But, what would happen if you or the other owner’s of your business were to die? You and the future of your business could be threatened financially if you aren’t properly protected.
How would you like to be in business with your deceased’s partners ex-wife’s husband?
While that scenario is extreme, here’s what could happen…Your associate’s share of your business could be inherited by a son, a daughter, spouse – or even ex-spouse, and you would be in business with his or her heirs. They might be inexperienced or have plans that are very different from yours for the future of your business. Perhaps you will be able to buy them out, but will you be able to agree on a price? Will you and your business have the money you need when you need it?
Your business produces the income your family depends on. With you there, your business is a valuable asset and the foundation of your family’s financial security.
But, what would your business be worth without you? Without a proper plan in place, you, your family, and your business could be in for serious financial problems.
All can be protected, however, with a buy-sell agreement. A buy-sell agreement is a legally binding contract between parties for selling and buying a business at a set price or a price derived from a formula that will take place at a triggering event. For example, the death of a partner.
The agreement typically provides that the deceased owner’s estate will sell the decedent’s stock or share of the business and that the surviving owner(s) will purchase that stock or share. The end result is that the deceased owner’s family receives cash equal to the value of the business interest and the surviving business owner acquires the decedent’s interest in the business.
So, a properly structured buy-sell agreement:
• Helps establish the value for the business or individual interests
• Identifies buyer(s) who must buy
• Establishes an agreed upon procedure in case of an owner’s death
• Requires an estate to sell to surviving owners or employees
• Provides funding for the buy-out
How can the buy-sell agreement provide funding? One of the more popular ways is with life insurance. Life insurance can be used to help protect the value of your business and provide your family with options for the future. Whether your family’s interest in the business continues or the business is terminated, you can help make sure that the “going concern” value of your business will be there – in cash – for those you love.
Buy-sell agreements can be complex documents and it is important that they be written and funded properly in order to be executed. Work with your financial advisor, accountant, and attorney to determine how a buy-sell agreement may be able to help you, your business, your family and other owners.
If something happens to you, executing a buy-sell agreement may be the best option when it comes to retaining control of your decisions.