If you have built a successful business and plan to leave it to your heirs or business partners, doing so is not a process that just happens naturally after you retire or die. If you don’t have a buy-sell agreement, a business succession plan, a business transition plan or a business preservation plan in place, your dream could die when you do.
Any number of factors can work against your dreams if you have not planned ahead. Your business could be valued by the IRS for more than it can be sold for, leaving your family unable to pay the taxes. If you are in a partnership, your partners may not have sufficient financial resources to purchase your ownership share from your heirs.
A properly drafted buy-sell agreement provides for numerous triggering events – death, disability, divorce, retirement, etc. — when someone can purchase your shares of the business or make sure that your shares are passed to your beneficiaries.
A buy-sell agreement is a binding agreement that is put into place before you retire or die. Depending on the needs of your business, a buy-sell agreement can be created to utilize a variety of payment options for the selling shareholder or estate.
For example, you can choose lump sum payments, conservative payments terms over 5 or 6 years, or aggressive payment terms over two years or less. You should also make sure the company is not cash strapped with payments by providing a life insurance policy to provide the company liquidity and to implement your business preservation plan.