Buy-Sell Agreement
Protect Your Purchase with Buy-Sell Agreement Coverage
Buy-sell agreements help business partners manage difficult situations while protecting the business and their interests.
These agreements often stop owners from selling their shares to outsiders without getting approval from the other owners. This protection also applies if a partner passes away. Typically, the agreement says that the deceased partner's shares must be sold back to the business or to the remaining partners, preventing the estate from selling them to someone else.
There are two main types of buy-sell agreements:
Cross-Purchase Agreement: In this type, the other owners or partners buy the shares that are up for sale.
Entity-Purchase Agreement: Also known as a redemption agreement, this option allows the business itself to buy the shares from a deceased owner.
Advantages of Buy-Sell Agreements
Buy-sell agreements help business partners manage difficult situations while protecting the business and their interests.
These agreements often stop owners from selling their shares to outsiders without getting approval from the other owners. This protection also applies if a partner passes away. Typically, the agreement says that the deceased partner's shares must be sold back to the business or to the remaining partners, preventing the estate from selling them to someone else.
In addition to controlling ownership, buy-sell agreements outline how to value a partner's share. This valuation method can help resolve disagreements about the company’s value or a partner's share.
Potential Business Benefits of a Buy/Sell Agreement
A buy/sell agreement gives business owners peace of mind, ensuring that their company is managed properly if they are unable or unwilling to do so. The benefits include:
- Setting a fair market value for ownership exchange
- Ensuring an orderly transfer of wealth, ownership, and management
- Providing potential tax advantages
- Helping heirs find a buyer for assets they might not manage well
- Giving heirs cash to cover estate debts and expenses
Potential Benefits for Business Partners and Employees
For employees, a buy/sell agreement allows them to buy a business they care about, even if they don’t have enough money. This agreement also:
- Ensures that a deceased owner’s shares do not go to someone unsuitable
- Provides continuity for customers, creditors, and employees
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