Today, I would be covering the topic buy-sell agreement through this blog post.
Buy-Sell Agreement is a kind of business agreement which is legally binding and tells what would happen if some specific eliciting event occurs. This event could be disability, retirement, resignation or death. The agreement suggests a business arrangement where one owner agrees to purchase the interest of another owner at some pre-determined price.
Benefits of Buy-Sell Agreement
A well funded and well drafted buy-sell business agreement is a key to good business strategy. It provides the following benefits to the businessmen:
- It permits the business continuation in a manner which is agreed upon earlier by everybody.
- The business owners can include the points regarding what would be done if an unexpected thing happens.
- If the agreement is funded properly, it will provide all the necessary resources for the agreement.
- It provides a fair price.
Drafting a buy-sell agreement
Buy-sell agreements are of different types – Cross Purchase Agreements, Entity Purchase Agreements, Trusted Cross Purchase Agreements, and Wait & See Agreements. You should consult tax advisors or legal advisors to settle upon the best agreement for particular situation. After that, you can download suitable business agreement template from the internet and create your agreement by taking help from the template and editing the necessary information as per your own business.
When drafting your buy-sell agreement, there are certain questions that need to be discussed. These questions include:
- Whether the agreement should be made binding to only current owners or all owners for the whole business life?
- What would happen if some event such as dismissal or resignation occurs?
To conclude, I would say that a buy-sell business agreement can prove to be an effective tool that allows for continuation of business even after some triggering event occurs. When this agreement is funded with LIC, in the event of owner’s death, it will provide survivor owners the amount necessary to meet the obligations of the agreement. The decision to employ this agreement is a kind of planning decision and should include the professional advisors and owners.
