A buy-sell agreement is the strongest way to define how the transfer of business interest will occur in the event of death or disability and should specify how the business will be valued. Every co-owned business needs a buy-sell (or buyout) agreement the moment the business is formed or as soon after as possible. Each day that value is added to the business without a plan for the future increases financial risk.
A chief concern of business owners is what would happen to the business if one of the owners could no longer continue operating the company. Surviving owners generally want to ensure a continuity of ownership and management without having the departing owner’s successor thrust upon them. It’s also essential to avoid compromising the liquidity needs of the business by funding a significant buyout. Disabled or deceased owners would want their families compensated fairly for their share of the business.
By working with AIB, we’ll help you create a properly drafted buy-sell agreement that will help you achieve the following goals in providing that:
- Upon the occurrence of a specified “triggering event”. The owners are guaranteed that their interest in the business will be purchased.
- The owner’s interest must be sold to the company, the remaining owners, or a combination of the two.
- A mechanism whereby the purchase price may be determined by market conditions in existence upon the occurrence of the event.
- A funding source, primarily through insurance policies. So that the liquidity needs of the business or its owners will not be onerous.
- A valuation of a deceased owner’s interest is established in the business for estate tax purposes.