Buy-Sell Agreement Funding

Buy-Sell Agreement

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A chief concern among business owners is what will happen upon the death of one of the owners: how will it affect the business, the other owners and the deceased owner’s heirs? Surviving owners want to ensure the continuity of ownership, and avoid having a ownership fall into the hands of potentially inexperienced heirs of the deceased. In addition, they want to protect themselves and the company financially. On a personal level, owners also want to ensure that their family is financially secure and compensated fairly if something happens to them.

A buy-sell agreement can address all of these concerns. It is a contract among business owners which, upon the death of one of the owners, requires the remaining owners or the company itself to purchase the deceased’s interest in the company, according to the agreed upon terms of the contract. In addition, the deceased’s heirs are required to comply by selling their inherited interest at the previously agreed upon price.

Benefits of a Buy-Sell Agreement

  • Establishes a valuation of a deceased owner’s interest in the business for estate tax purposes
  • Establishes a mutually agreeable price and terms, to reduce future potential litigation and friction
  • Helps facilitate a smooth transition of management
  • Ensures the family of the deceased owner receives cash instead of unmarketable stock

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This article was written by Zywave LP, an entity unrelated to HollandStivers & Associates LLC. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. HollandStivers & Associates LLC does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. ©2012 Zywave LP. All rights reserved.