A business partnership is like a marriage but without the romance. There is a financial arrangement where partners share in both the benefits and risks. If one partner, in the event of a premature death or disability, for example, is unwilling to continue with the business, a Buy-Sell agreement sets out how that partner’s interest is transferred. It’s a blueprint to predetermine the sale or transfer of the company or an interest in it based on some specified future event, including the retirement of a partner or owner. It protects all partners and/or family members and provides certainty in the event that an unexpected crisis necessitates a change in leadership.
A Buy-Sell agreement outlines the terms of a partner’s exit from the business. It determines how a co-owner’s shares are sold, including who can buy them and at what price. Typically, Buy-Sell agreements are drafted with funding provisions, such as an insurance policy, to pay for a buyout. Certain provisions might limit the personal risk held by each partner and shift it to the business entity.
Arroyo can help you structure a Buy-Sell agreement and fund it through a Life or Disability insurance policy. The funding is particularly important if perpetuation of the business is your priority. The payout from an insurance policy can be used to facilitate a quick sale of the business interest to a beneficiary, or it can go to pay estate taxes.