Whether you own a partnership or corporation, a buy-sell agreement is essential. The agreement basically sets out provisions that determine how, and under what circumstances, shares of the company can be bought or sold. Some common questions to consider when drafting a buy-sell are:
- What happens if a partner/shareholder wants to retire?
- What if there is a dispute between partners? Can I buy the partner out?
- How are shares valued when a partner leaves?
- What happens to the company if a partner dies? Who acquires those shares?
- What happens if a partner becomes disabled?
- Can a partner use the value of their shares as collateral for personal purchases like a house?
- What happens to a partner’s shares upon divorce?
- What happens if a partner gets disabled and can no longer contribute to the company?
The above questions are just some of the considerations that a buy-sell agreement will determine. It is often easier to have these discussions at the inception of the company, rather than wait until an issue arises and then determine how to resolve the dispute. A lawyer well versed in buy-sell agreements will help answer these questions and draft an agreement appropriate for all shareholders.
A life insurance advisor can also help by providing insurance solutions to protect your financial security which generally forms the foundation of a buy-sell agreement which creates capital when one of the owners dies to redeem his or her shares.