A Buy/Sell Partnership Agreement (also known as a buyout agreement) protects your business from unexpected changes in your partnership. It is a legally binding contract that states how a partner’s share of the business may be reassigned in case of unexpected events.
When a business partner becomes sick or injured, ensure fair compensation and sale of shares.
Shield your company from a divorce settlement and define who has the right to sell shares and when.
Preserve your investments and avoid costly, time consuming court battles.
After losing a business partner, ensure shares are passed on to a qualified partner instead of an unsuitable family member.
Starting your own business is inherently risky. And although starting a partnership is exciting, it adds a new level of risk. That’s why it’s important to eliminate as much risk as possible as early as you can. One smart way to do this is by drafting up a Buy/Sell Partnership Agreement.
A Well-Thought Out Buy/Sell Partnership Agreement Includes
A known buyer for your business following a partner's planned (or unplanned) departure from the business.
Estate liquidity in the event of death to help pay state and federal taxes, debts and other estate settlement costs.
Stability with a smooth transition of leadership; your employees, customers, suppliers, creditors, etc. will feel more secure and be more likely to stay with the company.
Greater retirement security knowing the details of your retirement can help you plan for it without having to depend on the business.
A known purchase price helps your family plan for the future with confidence.
Business value for estate tax purposes so you can plan how to pay your estate tax liability in advance.
Improved access to credit. Banks and lenders are more likely to extend credit to your business with a buy/sell partnership agreement in place.
The Benefits of a Buy/Sell Partnership Agreement Includes
Peace of Mind
Seamless Transition
Orderly Transfer of Wealth and Ownership
Many business owners make the common mistake of treating a Buy/Sell Agreement as an afterthought. . .
Only after legal fees have piled up or the business was passed down to an unsuitable family member are they filled with regret. Don’t let this happen to you.
No Buy/Sell Agreement
Malcolm and his partner started their own veterinarian practice. They decided to put off drafting a buy/sell agreement until they were making more revenue. They kept putting it off until they forgot about it. Malcolm's partner unexpectedly got sick and passed away. He was then stuck with an unsuitable family member and forced to sell the practice. It was sold at a fraction of the value instead of the highest valuation. Without a buy/sell agreement in place, your options are limited. With a buy/sell agreement, you can avoid having to sell your practice, taking out a loan or paying out your partner's family.
Buy/Sell Agreement
Jack decided to start a dentistry practice with his long-time friend, Bill. To protect their friendship in case of conflict, he knew it was best to have a buy/ sell agreement in place from the very beginning. After a few years, Jack and his partner lost their synergy and were no longer on the same page with their business. Jack decided it was best that they parted ways. He was grateful that he had the capital to buy his partner out, thanks to the buy/sell agreement.
The earlier you secure a Buy/Sell Partnership Agreement, the easier and more affordable it will be. Since they often involve life insurance plans, the younger and healthier every partner is, the more favorable the rates.
It’s a legally binding contract between owners of a business that states how the partners’ shares may be reassigned in case of unexpected events (such as a disagreement, divorce, disability, death, etc). It restricts the rights of owners to transfer their interests in the entity.
In a buy/sell agreement funded by life insurance, the company or the individual co-owners buy life insurance policies on the lives of each coowner.
In case of an unexpected death, the company or the co-owners would receive the death benefits from the insurance policies.
Plus, the deceased member’s family would get a sum of cash as payment for their interest in the business. This provides financial support for them and it also provides stability for the company.
A buy/sell agreement gives employers peace of mind knowing that their business is in capable hands in case they are no longer able to run it. It also provides money to create a fair market value exchange and can offer tax advantages. It promotes equitable and orderly transfer of wealth, ownership and management. Lastly, it provides heirs cash to pay estate debt, expenses, and taxes.
If an unexpected event like a death, disability, disagreement, or divorce were to happen in your business, it could cause a disruption. This would effect everyone involved in the business from creditors to employees. You also run the risk of your partner’s ownership being passed down to an unsuitable family member.
As soon as you and your partner/s start your business. Having a Buy/Sell Partnership Agreement in place is a key factor in building a successful partnership and resilient business. The earlier you act and the healthier the business owners are, the more favorable rates will be.
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