Anyone who owns an interest in a partnership, multiple member LLC, or small corporation should understand the importance of having a proper buy-sell agreement in place for their business. Every business owner should develop a plan of action in the event that one of the owners of the company becomes disabled or passes away, as well as if an owner decides to retire by transferring or selling his or her interest in the company.
A well-drafted buy-sell agreement is critical for every business because, even though a business may be brand new, one of the situations mentioned above is inevitable at some point in the future. A buy-sell agreement enables business owners to develop an exit strategy and helps them avoid disagreements by clarifying owner rights and responsibilities when ownership throughout the company changes.
Many business owners are concerned with how they will fund a buy-sell plan. Life insurance is a common funding method. By funding a buy-sell agreement with life insurance, each owner purchases a life insurance policy on the life of the other. In the event that one of the owners dies, the surviving owner will receive the life insurance proceeds and can use those proceeds to purchase the deceased owner’s business interest at the amount specified in the buy-sell agreement.
Buy-sell agreements afford business owners a piece of mind and a protection in their investment. Please contact an attorney at Ourednik Law Offices, P.A. if you would like to learn more.