Funding your buy-sell agreement
Anyone who owns a closely held business with at least one other partner needs to take certain steps to guard against business disruption. If one partner departs suddenly, or becomes disabled or dies, serious confusion and conflicts can ensue. Among the most important steps is to create a buy-sell agreement which stipulates precisely how ownership interests will be valued and purchased.
Two ways to play
In most situations, payouts for a buy-sell agreement are funded with a cash-value life insurance policy or a disability buyout insurance policy. There are two main types of life insurance-funded buy-sell agreements:
It's usually wise to hire a professional business appraiser to perform a business valuation when drafting a buy-sell agreement. The valuation should then be updated periodically as circumstances that could potentially affect the value of the company change. In fact, the buy-sell agreement itself should be reviewed by all of the partners from time to time to make sure it still reflects each partner's intentions.
An important step
Creating a buy-sell agreement is an important step in the growth and preservation of every business. For help creating or reviewing yours, give our business advisory team a call.