How Small Business Owners Can Fund a Buy-Sell Agreement

If you are a small business owner and have business partners or shareholders, then you need to be prepared for what would happen if one of you passed away. It is important to have this sorted out before something happens, as it can determine how your estate — and the estates of those still living and deceased – will be affected.

With a buy-sell agreement, you can specify certain triggering events-like death, retirement, disability or even divorce-that will govern the purchase or distribution of your ownership shares to partners or beneficiaries. A buy-sell agreement accomplishes three critical tasks:

1. Provides a way to value shares.
2. Ensures the shares are sold in a manner approved by other partners or heirs.
3. Details the process for selling the business outright.

For the buying and selling of shares after a partner is deceased, the best type of funding according to many analysts is life insurance. You’ll need to have current financials and other details to present to your business attorney in order to set up a life insurance plan that covers buy-sell agreements, but taking the trouble to plan now can save you plenty later.

For example, if one business partner dies and there are two others remaining, those two will want to have the ability to buy out the decedent’s share of the company from his or her estate without having to tap into company coffers. This can all be best — and most inexpensively — handled via life insurance that is tailored specifically to your estate as a small business owner.

The time to plan for and execute a buy-sell agreement is before you ever need it. A qualified Florida business attorney can help you plan for potential issues well beyond the obvious and craft a buy-sell agreement that meets the needs of all current and potential future owners.