“BUY SELL” AGREEMENTS

It is important to implement a detailed plan in the event of the death or disability of an owner. Many people refer to this process as developing a “buy-sell” agreement. It doesn’t matter whether the company is a partnership, a limited liability company (LLC) or a corporation.

A comprehensive buy-sell agreement will cover the buy out of a deceased owner’s interest in the event of certain “trigger” events. These trigger events can include:

• The death or permanent disability of an owner (the most common provision)
• If an owner retires (at a defined age)
• The owner quits working for the business full time
• The owner has personal creditor or bankruptcy problems
• If the individual’s employment is terminated by the company for any serious reason

There are different types of buy-sell agreements, including cross purchase agreements, entity purchase agreements and hybrid agreements. The choice of which type of agreement is best for any given company depends upon the needs and objectives of the owners and, to some extent, the tax structure of the company.

Often, the parties will purchase life insurance policies on business owners as part of a business succession plan. Insurance planning can be done in conjunction with a buy-sell agreement. A buy-sell agreement can include mandatory or optional purchase of interests if one or more of the stated trigger events occurs. The agreement can be limited to that topic or can include provisions for management of the company and board of directors in the event of an owner’s death, disability or retirement.

Successful implementation of a business succession plan requires counsel who is experienced in business law and tax law. For nearly 30 years, the attorneys at Kaufman Law Group have advised businesses of all types concerning decisions from business formation to business succession to mergers and acquisitions. For a consultation concerning a business succession plan for your business, call Kaufman Law Group today.