Business Succession through a Buy-Sell Agreement
For most family-owned businesses, the ownership of company shares is usually kept within select family members. Should any of the owners pass away, the business shares of the deceased owner will legally pass on to the heirs. This can be a dilemma especially if the intention is to prevent non-family members and unwanted heirs from joining the business.
This common dilemma in business succession is usually managed through a Buy-Sell Agreement. If your business has multiple owners, a buy-sell agreement offers protection to both the owners and the business in case of an unforeseen event. It sets out the conditions in which an owner has the right to buy the ownership share of another owner. In a buy-sell agreement, life insurance proceeds can be used by the company or business partners to buy out the deceased partner's shares.
Why business owners need a Buy-Sell Agreement
Prepare for uncertainties such as the loss of a business partner or shareholder and ensure a smooth transition with a buy-sell agreement.
For the company or business partners
- Provides capital to buy out the shares of the deceased partner
- Allows smooth transition
- Ensures continuity of ownership and control
For the family or heirs
- Offers fair valuation of shares based on an agreed method
- Provides liquidity with cash being readily available
- Allows them to pursue their own interests