The business that you and your partners have been building for years is finally running at peak efficiency. You have all put in many hours to make it work the way you want it to. Then tragedy strikes when one of your partners suddenly dies.
Many questions surface among you and your partners, such as:
- What Will Happen to My Deceased Partner’s Shares in Our Business?
- Will We Be Forced to Pay the Family for the Value of the Shares?
- How Much Will I Have to Pay and How Do We Determine the Value of the Shares?
- Where Will I Get the Money to Pay for This?
This is an example of what could happen to any business owner, at any time. However, your Business Attorney should be able to plan adequately for such a contingency through the use of a BUY/SELL AGREEMENT.
This document is an agreement between business partners as to how a business will continue, or not, in the event of the death of one of the partners. It can set out the method to value the shares, provide for Key Man Insurance planning, and provide a payment schedule to the estate of your deceased partner based on known interest rate indicators.
This form of agreement is complex, in that it covers a multitude of provisions. It is much like the drafting of a Last Will and Testament, but for a business. It requires close communication with your Business Attorney.
Fortunately, this document, although complex, is not difficult to prepare. A well versed Business Attorney knows the right questions to ask, and the right solutions to offer, making the process of drafting a BUY/SELL AGREEMENT a painless process.
Due to the nature and complexity of this form of agreement, and how it must be custom drafted to fit you and your business, it is recommended that you do not purchase a form from a website that offers to sell such documents. Like a Last Will and Testament, a BUY/SELL AGREEMENT is specific to you and a basic internet form will not generally cover the critical areas satisfactorily.
As a final note, you should have your Business Attorney also review your Last Will and Testament, to determine if any changes are necessary to the document. Major life changes, such as the birth of a child, marriage, divorce, death of spouse or one your intended beneficiary, illness, or reversal of fortune or all valid reasons to have your Last Will and Testament reviewed to determine if redrafting is recommended. Most Attorneys do not charge their regular clients to review for changes.
You should always consult your Attorney, as state law varies. This article is not intended to provide legal advice, but rather to prompt you to seek advice from your Business Attorney to determine your specific circumstances and need.