Buy/Sell Agreements
A funded plan for what happens to a partner's share if they die, become disabled, or want out.
The contract that keeps a business from falling apart.
A buy/sell agreement is a legal contract between owners that spells out what happens to a partner’s share of the business under specific triggering events—death, disability, retirement, divorce, or voluntary exit. Without one (or with an unfunded one), a partner’s spouse or estate ends up as your new business partner.
The three main structures
- Cross-purchase agreement — remaining owners buy out the departing owner’s share
- Entity purchase / stock redemption — the company itself buys the share back
- Wait-and-see agreement — flexibility built in; the choice between the two structures gets made when the triggering event happens
Funding the agreement
A contract without funding is just paperwork. We typically use life insurance to fund death triggers and disability buyout policies for disability triggers. The structure (who owns the policy, who pays the premium, who’s the beneficiary) has major tax implications—worth getting right.
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