As a business owner, you want to ensure the perpetuation of your company, especially in the event of your or your partner’s premature disability or death. When looking at your options, consider a Buy-Sell agreement, which can serve as a blueprint that predetermines the sale or transfer of the company or an interest in it based on a specified future event.

A Buy-Sell Agreement is designed to protect your business and your family. In the event of your death or disability, it helps the remaining partners or family members avoid conflicts over the disposition of company assets and/or debt. A good contract will also set a value or a calculation methodology for a value of the business interest so valuation disputes can be prevented or at least minimized.

There are two types of plans: A Cross-Purchase plan in which each business owner purchases a life insurance policy on each of the other owners. When an owner dies, the surviving owners use the death benefit to purchase the deceased owner’s share of the business. A cross purchase plan is typically limited to cases where there are only two or three owners. The second option is an Entity Purchase or Sock Redemption plan between the owner and employees, where each owner enters into an agreement with the business for the sale of their respective interests to the business.

For employees, a buy-sell agreement provides a way to purchase a business they have a vested interest in, but perhaps not the money to do so. It also assures remaining owners that the deceased’s share of the business will not pass on to someone unsuitable, and it provides continuity for customers, creditors, and employees