"If you did not look after today's business, then you might as well forget about tomorrow."
If you're not keen on working with your business partner's family,
you need a buy-sell agreement.
Let's pretend your business partner walks into your office tomorrow morning and says, "I'm taking a permanent vacation, starting now. You need to fulfill all the contracts we have, collect payment from clients, auction off our assets, and pay all the bills. Oh, and don't forget to give my spouse half of everything that's left over. Yeah, and I'm going to need you to come in on Saturday."
Did your heart stop beating for just a second there? It's happened to lots of business owners who had no idea how vulnerable they were to these kinds of circumstances.
The above scenario is the equivalent of what happens when your business partner dies suddenly. His or her heirs—a crazy spouse, demanding kids, or a trust run by people who never liked you in high school—become your new business partners.
They now control your dead partner's share of the business. They can show up for work and disrupt the business model you and your partner worked so hard to build. Or they can not show up at all, leaving you without help to run the business alone. They may want to do things like change the business name, logo, staff, mission statement, location, or anything else you've built with blood, sweat, and tears.
You can try and talk them out of it, but let's be honest—that doesn't always work. You can try and lock them out of the building, but since the law is on their side as a new partial owner, they'll just have the cops unlock it for them. If this sounds like a nightmare, buy-sell life insurance is your solution.
This is not how you want to solve the problem of a business partner's death or retirement. You need a buy-sell agreement instead.
Buy-sell insurance is a legally binding contract that stipulates what happens to your business if you or a co-owner leaves the business, either through retirement or an unforeseen death. You might also hear this referred to as a "buy-sell agreement." In most cases, the agreement will do two things: (a) stipulate the value of the business, and (b) set the buyout price for the surviving partner to purchase the deceased partner's share of the business.
Here are the benefits of this kind of agreement:
A buy-sell life insurance agreement is sometimes also called a "shareholder agreement." Many large businesses and corporations have this written into the paperwork they file when the company is founded. If you're not sure whether you have one or not, ask your attorney to help you review your company's paperwork and bylaws.
The buy-sell agreement is funded, which means the agreement contains a method of funding that the surviving owner can use to purchase the deceased/retired owner's share of the business. After all, most people don't have hundreds of thousands of dollars in cash lying around.
Life insurance provides the funds you need to buy out your deceased partner's share of the business. As part of the agreement, you and your partner take out life insurance policies on each other. You can own the policy, or it can be held by the company itself. Then, if your partner (let's call him John) passes away unexpectedly, you are John's beneficiary. You get the death benefit, and you can use that money to buy John's share of the business. This keeps you from having to work with John's crazy kids, who are his heirs.
If you combine buy-sell agreement insurance with key man life insurance, it will also give you liquid cash to:
Are you ready to get started with buy-sell insurance? Just imagine sitting in your next planning meeting with an unfamiliar, untrained, unqualified person...and you'll see the value in taking the time to plan for future right now.
To get an idea of what the life insurance policy on you and your business partner will cost, run both of your stats through our instant quoter, or give us a call at 800-823-4852. Click the button below to get started!