Today, small business owners invest their time, efforts and labor into making their business succeed. And although these energies provide an income and family benefits now, they need not cease when the owner retires, become disabled or passes away.
Therefore, it is generally recommend (especially when there are two or more partners / shareholders / owners) that a Buy-Sell Agreement is created and funded. It's a fairly easy process and can provide a piece of mind.
What is a Buy-Sell Agreement?
A Buy-Sell Agreement is simply a written agreement made between the partner or shareholders of the business specifying buy out provisions caused by such things as death, disability, divorce, bankruptcy, voluntary termination, company dissolution, etc.
The amount of the buy out will be based on some type of valuation model, peculiar to that operation of business.
Buy-Sell agreements should always be in place and funded BEFORE the commencement of operations. Yet for some unknown reason, this is rarely the case.
Why a Buy-Sell Agreement?
The execution of a Buy-Sell Agreement secures a number of very tangible benefits for the shareholders, including:
The Basic types of Buy-Sell Agreements
The three basic forms are each distinguishable by the purchasing party.
The following links briefly discuss and illustrate the important elements of each method. This information offers a general overview of Business Continuation agreements and is not meant as legal advice.
Regardless of the form selected, the Buy-Sell Agreement establishes for the shareholders the terms of the purchase, including the events that trigger a purchase, the method of valuation, and most importantly, the buy out funding mechanism.
Funding a Buy-Sell Agreement
Careful consideration must be given to the funding aspect of the buy-sell equation. Many factors point to the use of life insurance in funding buy-sell agreements, including the following:
Action To Take
Click HERE to obtain Business Continuation / Buy-Sell information
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*Potential tax-free income assumes (i) properly structured withdrawals to tax basis and policy loans thereafter, which will reduce policy values and death benefits, (ii) the policy is not a Modified Endowment Contract as defined in Internal Revenue Code Section 7702A and (iii) the policy remains in force until death. Loans and withdrawals may reduce the policy values and death benefit.
Please note: This material is not opinion or advice on legal or tax matters, for which only private counsel may be responsible.
Copyright © 1998
Fielder Financial Management, LTD.
All Rights Reserved.
Securities and investment advisory services offered
through Girard Securities, Inc. member FINRA, SIPC.
Fielder Financial Management, Ltd. not affiliated with Girard Securities, Inc. Mark Fielder, OSJ, Registered Principal. CA. Insurance Lic. # 0690576.