Buy Sell Agreements
What happens when a business partner is severely sick or dies?
What is a Buy-Sell Agreement and how can it prevent negative outcomes from an unexpected event?
John Gallagher, solicitor from Argon Law provides the information your business needs in the likelihood of losing a business partner, either to a personal sickness or unexpected tragedy.
Options within a Buy-Sell Agreement allows the exiting partners share to be sold to the ongoing partners.
The agreement determines how the interests of an exiting partner are valued and how the continuing partners will fund the business.
This video explores these concepts and provides you with business planning options, to ensure your company survives during a rough time.
Good business planning should cover how the business owners will deal with what happens when one of the business owners becomes unable to continue to work in the business due to an unexpected event such as death, injury or sickness.
Without proper planning, such an event could create enormous difficulties and even cause the business to close.
People who carry on business together will generally sign a partnership or shareholders agreement to govern the general operation of the business relationship and even some termination events.
Buy-sell agreements are usually separate to this and only operate in the event that one of a specified list of unexpected tragedies or events befalls one of the partners, who then exits the business.
Buy-sell agreements provide a mechanism for the interest of the exiting partner to be acquired by the ongoing partner or partners. This is done using options enabling either side to require that the exiting partner’s share be sold to the ongoing partners.
The agreements also determine:
- how the interest of the existing partner is to be valued; and
- how the continuing partners will fund the purchase.
The valuation can be done in a number of different ways but quite often is done by agreement between the partners and reviewed by then on a regular basis.
This then enables the funding to be arranged in advance using life insurance, although there are often other funding options open to the partners.
If life insurance is used, then it’s important that the insurance is reviewed whenever the partners review the valuation.
Buy-sell agreements are often also signed by the spouses or close family members of the business owners, as it will be those parties who will be selling the interest in the event of death.
If you would like to know more about buy-sell agreements or other aspects of business succession planning then please contact us on 07 5443 9988 or [email protected].
Argon Law is a Sunshine Coast law firm based in Maroochydore. We are commercial lawyers, business lawyers and property lawyers and are eager to assist you in any way we can.
View Youtube channel youtube.com/ArgonLawMaroochydore