Protecting Your Business With A Buy-Sell Agreement

Although we have significant experience handling a wide range of business law issues, the attorneys at Drucker & Mattia, PLLC, draft wills, create trusts, and assist clients with estate planning. One of the most significant benefits of estate planning is that it allows you to be prepared for the future despite the inherent uncertainties of tomorrow. Why are we talking about estate planning when the blog is about buy-sell agreements? Because the mentality behind why business partners create them is fundamentally the same.

Imagine that you and your business partner build a successful company together. Although you have developed systems and processes for long-term, sustainable growth, what happens if your business partner passes away unexpectedly? This situation could become even more complicated if your partner didn’t have an estate plan. Intestate laws dictate who receives your partner’s shares in the company. Ultimately, you could be left with a business partner who either doesn’t know how to run a business, wants to take the business in a completely new direction, or has no interest in being a part of it. Although that last scenario may sound ideal, that doesn’t mean the person who inherited your partner’s shares could sell their ownership to one of your competitors.

How a Buy-Sell Agreement Can Prevent Disputes

A buy-sell agreement will ensure you get to maintain control of your business, and your partner’s family will receive compensation. One of the common ways this is achieved is by both partners taking out life insurance policies—and they will name one another as beneficiaries. When one partner passes away, the other person receives a payout per the life insurance policy. Subsequently, the surviving partner uses it to pay the deceased’s estate for their shares in the company.

One common question is whether the estate can refuse to sell despite the buy-sell agreement that the deceased signed. When done correctly, the buy-sell agreement would force the estate to sell.

Having a buy-sell agreement in place should occur very early in your business’s life cycle. Much like the need for an estate plan, there is no reason to wait. Furthermore, you can discuss several ways to craft the agreement when you meet with your attorney. For instance, when the remaining partner(s) buy out the deceased shares, it is a cross-purchase agreement. When the business pays for those shared, it is an entity-purchase agreement. People may opt for both the partners and the company to pay the beneficiaries.

Your Source for Business Law Advice Drucker & Mattia, PLLC is a neighborhood firm committed to helping communities and businesses grow. With over forty years of combined experience, we will develop the unique and custom solutions you need to grow your business. If you want to discuss your business goals with one of our attorneys, contact us today to schedule a free consultation.