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Why Your Business Needs a Buy-Sell Agreement

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A Blog by Daniel Brookman of Stolly Insurance

If you own any portion of a closely held or family business, a buy-sell agreement is an essential part of your business plan.

Any owner’s death, disability, bankruptcy, divorce, or retirement can create a laundry list of tax and financial consequences easily avoidable with just a little planning ahead.

No matter how the business is structured; whether it be a corporation, partnership, sole proprietorship, or LLC there isn’t a business entity out there that isn’t vulnerable to this risk. Having this legally binding agreement in place ensures that there’s no fighting amongst co-owners and family members because the terms are clearly spelled out ahead of time. This is crucial during a time of transition when retaining customers, employees, and cash flow is extremely important in order for the business to stay open.

Let’s say you and your business partner, Jeff own and operate a food truck and each of you owns 50% of the company. If Jeff dies, what happens to his shares of the business? Are you in business with Jeff’s wife or children? Are you allowed to buy the new shareholders out? If so, how will you finance the buy-out and how will you agree on a valuation? What would your family get if you were the one to die pre-maturely instead of Jeff? There are so many important questions you don’t want to be stuck answering after tragedy has already struck.

In order to get a buy-sell agreement in place you need several professionals to help you along the way.

You’ll need a business or tax attorney who has experience in writing these types of contracts. You’ll also need a CPA who is familiar with the IRS’s rules on business valuations so you’ll have an accurate and indisputable value for the shares. Also, while insurance isn’t required to fund the agreement, it often times is the most cost effective and tax efficent way to make sure the money is there when it’s needed.

Here at Stolly Insurance Group we have relationships with the attorneys who specialize in writing buy-sell agreements and have access to a team of CPAs who will complete a business valuation for our clients. Our agents can help you get the insurance plans in place to fund the agreement as well. So whether you already have an agreement in place that you would like reviewed, or you’re considering one for the first time, Stolly Insurance Group can help with every step of the process and make sure your family, business, and employees are protected.