What Is A Buy-Sell Agreement?

by | Dec 23, 2019 | Insurance Strategies, Life Insurance, Small Business Insurance

  1. Home
  2.  » 
  3. Insurance Strategies
  4.  » What Is A Buy-Sell Agreement?

A buy-sell agreement is aka a buyout agreement. It is a contract designed to protect a business should something happen to the owner or owners. Sort of like a prenuptial agreement for businesses. The agreement designates what happens with the shares of a business should something unexpected should happen. The agreement can also stipulate limitations as to how owners can sell or transfer shares of the company.

Triggering Buy-Sell Agreements

Should certain triggering events occur to one of the owners (or the sole proprietor) that may influence the continuity of a business, the buy-sell agreement kicks in. It protects the business and the remaining business owners from ramifications of an owner’s personal life that can impact the company.

Triggering events can include:

  • Death of an Owner / Partner
  • Divorce of an Owner
  • Disability or Long Term Illness
  • Personal Bankruptcy
  • Internal Conflict Between Partners
  • Retirement Specifications
  • Early Buyout Request

Any company can use a buy-sell agreement, especially if there’s more than one owner. The agreement would delineate how shares are sold in any situation. For instance, if a partner wants to retire, gets a divorce, or dies. The agreement would protect the business so that the heirs or a former spouse’s rights could be accounted for without selling the company.

Sole proprietors can use a buy-sell agreement too. If an owner wishes for a loyal employee to take over the company after their death. The owner can also use a buy-sell agreement to leave the business to an heir. An excellent way to lower estate taxes.

Agreements may be drawn up at any time.

Funding A Buy-Sell Agreement

Many businesses use life insurance for the execution of buy-sell agreements. A business with multiple owners, for instance, would have the business’ market value estimated. Each owner would then be insured by the other owners or the company for their portion of the company’s value. In case of a triggering event, the proceeds from the life insurance policy would be used by the remaining partners to purchase the deceased owner’s shares. With the valuation price going to the deceased owner’s family or estate.

Accounting for the total cost of the shares being transferred is also useful for a sole proprietor to pass the business to an employee or an heir. The life insurance contract would name that person as sole beneficiary. When the owner dies and the contract is triggered, the life insurance money is used to pay the estate. Then the company transfers the shares to the beneficiary.

Download the FREE Infographic about Buy/Sell Agreements!

[et_bloom_locked optin_id=”optin_1″]DOWNLOAD[/et_bloom_locked]

Looks like you have blocked notifications!
  1. Home
  2.  » 
  3. Insurance Strategies
  4.  » What Is A Buy-Sell Agreement?

You May Also Like…

[Heateor-SC]

This website provides information for the reader to choose to request more information about life insurance, insurance for small business, health insurance, Medicare, and supplemental insurance including how to request a quote. By requesting a quote, you agree to our Privacy Policy and our Terms & Conditions. If you submit your personal information, you are making a consumer inquiry for life insurance, insurance for small business, health insurance, Medicare, and supplemental insurance through me as a licensed insurance producer as more fully described below. By proceeding, you give your consent and expectation to be contacted by Richard E Smith and/or associates. Any health or personal information shared is protected by applicable privacy laws and regulations, including HIPAA.

Invitations on richardesmith.com for application for insurance are made through Richard E Smith an independent agent/producer. Richard E Smith is a licensed insurance producer in Florida (License# W568154).

Commercial use by others is prohibited by law. No portion of richardesmith.com may be copied, published, faxed, mailed or distributed in any manner for any purpose without prior written authorization from the owner.

Insurance policies described, quoted, shown, and illustrated throughout this website are not an offer for the sale of any particular insurance policy or product, only an invitation for application for insurance coverage and may not be relied upon. There are many variables in different insurance coverages and companies, including various insurance company standards and offerings, underwriting requirements and may not be available in all states.

We do not sell your personal information to anyone! You will not receive unsolicited, intrusive calls or emails from other agents and companies across the country. If you do provide your telephone number, Richard E Smith and/or his associates may call or text message/SMS you at the phone number(s) above, including your wireless number if provided. Normal charges may apply. This call may be generated using automated technology and if we're unable to reach you when we call, we may leave you a pre-recorded message, so you can call us back. Your consent to us calling is not required to get a quote or make a purchase and may be revoked at any time. You may simply call us at 239-596-8449. | Privacy Policy | Terms of Use