Protecting Your Business with a Buy-Sell Agreement
When you’re starting or growing a business with a partner, you make it a priority discuss your business plan, employee retention, and insurance coverage, but have you also considered what you will do if something were to happen to you or your partner? Every business should lay out a plan for what will happen if certain events occur to an owner.
A buy-sell agreement is a crucial part of a business succession plan. A buy-sell agreement is a binding agreement between business owners that details what will happen to the business if certain triggering events occur. Such events can include:
- retirement;
- disability;
- bankruptcy;
- death;
- divorce; and
Options to Secure Peace of Mind
Buy-sell agreements are designed to help partners manage potentially difficult situations in ways that protect the business and their personal and family interests. Two of the most common types of buy-sell agreements are a cross-purchase agreement and a stock redemption agreement.
- Cross-purchase agreement - Each owner will be the beneficiary, payer, and owner of each policy they purchase on the lives of the other business owners. It provides a clear outline of how the deceased owner’s heirs will sell their interest to the remaining owner(s) with the insurance proceeds. The family of the deceased owner’s tax basis will be equal to the fair market value at date of death, making for favorable tax treatment on the death proceeds.
- Stock redemption agreement - The company or corporation is obligated to redeem the shares of a deceased or disabled partner. Upon the death or disability of a partner, that partner’s stock much be returned to the company for payment according to the terms established in the buy-sell agreement. If the stock redemption agreement is funded with life insurance or disability insurance, the company pays the premiums. Finally, the company owns the insurance policy and is the policy’s beneficiary.
Design Your Plan with CBIZ Life Insurance Solutions
A well-crafted, properly funded buy-sell agreement can offer you peace of mind that your business and family will be protected if something happened to you or your business partner. Let CBIZ Life Insurance Solutions help you develop that plan to secure your peace of mind.