What is a buy-sell agreement?
A buy-sell agreement is a contract that provides for the future sale of your business interest, or for your purchase of a co-owner’s interest in the business. Buy-sell agreements are also known as business continuation agreements and buyout agreements.
Under the terms of a buy-sell agreement, the owners of the business enter into a contract for the transfer of an owner’s interest in the business upon the occurrence of a specified “triggering event.” Typical triggering events include death, disability, and retirement.
The parties to the buy-sell agreement, along with their professional advisors, will need to determine the value of the business, the applicable triggering events, and the best way to fund the agreement. Ideally, buy-sell agreements are fully funded, and life insurance is frequently used for this purpose.
Why have a buy-sell agreement?
If you are concerned about how the death of a co-owner might affect the operation of the business, a funded buy-sell agreement can help by ensuring that you will be able to purchase the interest of the deceased owner, eliminating any doubts about the continuation of the business. You can also avoid the problems of being in business with your partner’s spouse or other family members.
If you think that a buy-sell agreement might benefit you and your business, consult an attorney and other professional advisors about setting one up. At PG&Co, you can contact Richard (Rick) Petrucci at 401-699-0251 or firstname.lastname@example.org for more information. Rick will be presenting on the topic of Business Succession Planning, which highlights buy-sell agreements, during the Rhode Island 2021 Professional Day event taking place May 20-21, 2021. Registration for the event is open. He will be presenting on Friday, May 21 from 10:05 to 10:55 am.