The Other Guarantee

Everyone knows the expression of the only guarantees in life is death and taxes:  While we can’t do anything to change the tax code we can make plans to help reduce the financial impact that your death has on your loved ones, business partners, and vendors.

September is Life Insurance Awareness month and part of our mission we seek to increase the financial knowledge of the clients and prospects we serve.  With that in mind I want to use this post to discuss the importance of buy sell planning and properly funding these agreements.

Whenever a business (regardless of tax structure) is owned by two or more individuals, the owners need to take into consideration a legal agreement which outlines future ownership of the business due to a particular event (like death).  It can be very expensive and complicated to unwind the business relationship unless there is prior construction of a plan that addresses this possibility.

A buy-sell agreement (also known as a “shareholder agreement” or a “stock purchase agreement” is a specific type of agreement among the owners which set forth the terms by which business interests will be bought or sold upon the occurrence of certain events.  Some events to consider are the following:

  1. Death or Disability of an owner
  2. Voluntary Transfer of the stock
  3. Involuntary transfer of the stock
  4. Employment issues
  5. Shareholder Deadlock
  6. Valuation techniques

The buy-sell agreement provides a level of certainty and security that is predictable to a situation that can be unstable and unpredictable when a business partner passes away.  Controlling the future outcome of the business should be looked at as an obligation not just an option. A buy-sell is crucial for the longevity of a business.

In our next post we’ll look at the options for funding and types of buy-sell agreements.  If you own a business and have not reviewed your buy-sell agreement in the last couple of years we need to talk.  If you own a business and don’t have a plan in place give us a call and we will send you our piece about buy-sell planning basics.


Until our next Thought From The Factory on Main

Best wishes


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  We suggest that you discuss your specific situation with a qualified legal, tax or financial advisor