Buy/Sell Agreements – Till Death Do Us Part?

It’s no surprise that little or no thought is given to the business failing and if it is considered then it is generally about the business not succeeding.

When setting up a business, many charge full steam ahead with all guns blazing and the world at their feet.

It’s no surprise that little or no thought is given to the business failing, and if it is considered then it is generally about the business not succeeding.

Unfortunately, businesses can fail for many reasons.

One major influence would be the death of an owner, director or other significant person within the business. Although we don’t like to admit it, death is always a possibility.

It is at these dire times that you may regret not investigating the benefits of insurance or a buy/sell agreement.

If you’re not sure of the benefits, just consider the idea of replacing your business partner with their spouse or estate legal personal representative.

Without an appropriate buy/sell agreement and appropriate insurance, you may not have a choice.

What can a buy/sell agreement do?

  • It can and should specify a definite purchase price or a formula for determining the purchase price upon the death of an owner.
  • The last thing you want is your family to have to go to court over clarifying the business or its ownership so information can be included which identifies the business by name, location and legal ownership/structure.
  • Perhaps it is important to prevent an employee (or continuing business owner) from setting up in competition during a period of transition so you may include specific provisions to bind a key employee or a LPR to purchasing the business upon death.
  • You may have an undocumented business succession plan in place in anticipation of allowing a key employee first call to purchase the business upon death. Where metal or physical incapacity becomes an issue then this may be important if one owner decides to sell it during his/her lifetime.
  • As a business owner you may have an idea as to what the assets and goodwill are worth but who will be responsible for the debts of the business (purchaser or estate) upon the death or incapacity of an owner.
  • What if the company articles of association specify the removal of a director who suffers from dementia – should a replacement be factored into your plans.
  • What about personal bankruptcy leading to your new business partner becoming the trustee in bankruptcy!
  • Joint business loans, credit cards, credit terms all potentially create significant financial risk and stress for the surviving spouse or LPR.

The best time to arrange a buy/sell agreement and insurance for your business is now.

Our Estate Planning Champions can help to arrange this for you, and will do so in the most tax effective manner.

All you need to do is give us a buzz on (03) 8393 1000, and we can handle the rest.

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