How a Buy-Sell Agreement Helps Your Business

How a Buy-Sell Agreement Helps Your BusinessDesigned to protect your business and your family, in the event of your death or disability, a Buy-Sell helps the remaining family members avoid conflicts over the disposition of company assets or debt. The contract should set a value of the business interest so valuation disputes can be prevented or at least minimized. Having a formal, written document between owners, detailing transition plans is strongly recommended. 

These agreements can be included in the array of Employee Benefits packages that we offer along with our Tennessee Business Insurance program. Is this what your business needs? Let’s take a further look.

The Basics

There are two types of plans:

  1. Cross-Purchase plan: Each business owner purchases a life insurance policy on each of the other owners. When an owner dies, the surviving owners use the death benefit to purchase the deceased owner’s share of the business. It is typically limited to cases where there are only two or three owners.
  2. An Entity Purchase/Stock Redemption plan: Each owner enters into an agreement with the business for the sale of their respective interests to the business, or for employees to purchase a business they have a vested interest in, but don’t have the money to do so. It also assures remaining owners that the deceased’s share of the business will not pass on to someone unsuitable.

The primary purpose of a buy-sell agreement is to minimize disruptions to the business if a triggering event necessitates the purchase of one owner’s interest by other owners. Components of a proper buy-sell agreement should include a customized document that addresses the owners’ objectives, and has a business valuation clause rather than a specified valuation formula.

Protection Where it Counts

Buy-sell agreements protect both owners and owners’ family members; in the event of unforeseen circumstances, such as illness, death, or divorce, they help ensure that ownership remains in the hands of those who built the business, and that the former owner or owners receive fair value for their interest in the company.

A buy-sell agreement benefits the business by alleviating uncertainty, helping to maintain business value and smoothing transitions so that employees and clients feel less of an impact when a key leader is no longer with the company.

Unexpected circumstances are just that, unexpected. People are often unwilling or unable to plan for certain life events. That is why it is so important to consider these circumstances and the impact they may have.

The document should be updated every few years as the business evolves or the situations of the business owners change. A buy-sell agreement leaves a well-thought-out plan and specifics on how those in the right will receive the benefit of your investment in the business.

About Barnes Insurance Agency

At Barnes Insurance Agency, we specialize in vacation home rental insurance to ensure the protection of your property and assets. We strive to offer customizable solutions to meet your specific needs. For more information, contact us today at (877) 279-2500.

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