Buy/Sell Agreements

Whether you are a sole proprietor, a partner or a shareholder, most business owners have a huge financial and emotional stake in their business. When you are deeply involved in the all-consuming task of building your business, it may be hard to imagine a time when you would no longer be involved in the business. But the reality is that someday your involvement will end. It could happen suddenly and unexpectedly as a result of premature death, from suffering a life altering illness or accident that affects your ability to be an integral part of the business’ operation or even from disagreements with other shareholders or partners. It could be a gradual process involving the transfer of the business to the next generation, a key employee or other shareholders as your retirement unfolds according to plan.

Most business owners look to their business interests to provide for their retirement or their families if something happens earlier. Without a clear plan now, little if any of this value will be available!

The only way to ensure this value is with a solid business continuation plan that details how your business will continue as a viable enterprise without you, if and when any of these events occur.

What happens if you die or cannot work?

1) Will the business be wrapped up?
* Do you have projects that you are legally bound to complete?
* Will your estate have liability into the future?
* What will happen to the employees that rely on you for their livelihoods?
* What other financial or moral obligations do you have?

2) Will your partner(s) or other shareholders buy out your interest?
* How will the value be determined? (Will you leave it up to the other owner to determine how much your family will get? Does your spouse have a value in mind that might not be reasonable any longer without you being involved?)
* Will an employee buy your interest and try to keep the business going?
* Where would either of these groups get the money? (What happens if they agree to pay over a period of years and the business fails?)
* Will lenders get nervous and call their loans which would affect the company’s viability and the survivor's ability (and interest) to make payments?
* Will the other owners even want the company if you were a key ingredient in its success?

Any agreement also needs to look at the following:

1)What happens if the owners no longer get along?
* Will the business be wrapped up?
* Will one owner be bought out?
* Who will determine the value? (It much easier to get agreement on the formula to be used when you are getting along than it is when you don’t! Have you ever seen what happens to family assets when people get divorced?)

2)How will the buy out funding be provided for? Would you be willing to rely on the buyer’s ability to keep the business going as the means to pay you?

3)Can one owner sell his / her interest without permission from the other owners?

4)What happens in a marital breakdown of one owner? (Would their ex spouse suddenly own 50% of their shares?

5)If one owner has financial difficulties what can happen to their share? Could you come into the office on day to find that your banker is now your partner?

6)How about at retirement? How would the value be determined and what would the structure of the buy out be? (If the retiring persons has not planned well for their retirement, or their investment portfolio has lost a lot of money they may look to squeeze more out of the company or not be willing to sell their interest since they would be entitled to ongoing dividend income, etc.)

Any good plan must address all of these and more however the best plan without proper funding will not be much help in the case of death or illness.

Please contact us to discuss haw we can help you develop and implement your business continuation plan.

**the information provided herein in intended to provide general information and not to replace the professional advice of your insurance broker.  Should you have questions pertaining to your specific needs, please contact our office