Buy-Sell Agreements: Estate Planning for Your Company
Estate planning is one of the most important things a person can do. Properly executed estate plan documents provide an orderly way to take care of a person’s property after death or incapacity. In some cases, that property will continue to be used by family members for generations. As a business owner, you know the importance of running a smooth operation. And, come rain or shine, you may want your business, your legacy, to continue even after you are no longer involved. That’s why your company needs to be an integral part of your estate plan. One way to do this is through buy-sell agreements.
What is a Buy-Sell Agreement?
Simply put, it’s a legal document that tells a company how to handle a co-owner’s interest when that person is no longer involved with the company. A buy-sell agreement can also be called a buy out agreement.
The terms of the buy-sell may:
- restrict who can buy an ownership interest in the company;
- indicate how to calculate the value of the ownership interest;
- provide other owners the opportunity to buy the interest before anyone else; and
- state how the partners will pay for the interest.
A buy-sell agreement can be negotiated and signed when the company’s operational documents are signed or at any point in a company’s existence. It can also be prepared as part of a business owner’s estate plans.
What Triggers a Buy-Sell Agreement?
Usually, a buy-sell agreement is activated by one of the owner’s retirement, disability, or death. If the owners of a company become deadlocked about something like company operations, the buy-sell may be used to remove the deadlock.
Without a buy-sell agreement in place, the owners are at risk of:
- Divorce – a partner’s interest could end up being owned by a soon to be ex-spouse;
- Disability – the company might become unable to operate while one owner is hospitalized, disabled, or any way incapacitated;
- Disagreement – the business could become gridlocked if irreconcilable differences arise;
- Death – If an owner’s estate does not address company ownership, the owner’s heirs could take over that interest and claim to have a say in how the business is operated.
Call for more information.
We know how to analyze your current situation and help you make thoughtful decisions about your business and your estate. Call us at (480) 418-8448 to set up an appointment. Although located in Chandler, we also work with clients in the surrounding communities like Sun Lakes, Gilbert, Mesa, Phoenix, Scottsdale, and Tempe.