Buy/sell agreements establish a number of rules for unexpected contingencies in business. Ideally, your company sees nothing but smooth sailing, but there is no need to hope for that when you get it in writing beforehand.
As Forbes points out, every business partnership can see value in a buy/sell agreement.
Protection against the unthinkable
Many buy/sell agreements can get complicated and specific depending on what business partners wish to establish, but most tend to at least cover the unlikely death of one of the partners. Rather than those partner’s stakes defaulting to their spouse or next of kin, a buy/sell agreement specifies what happens and where any business property goes in the aftermath.
As well as death, buy/sell agreements can cover other conditions like retirement or disability with methods like buyouts or long-term payment schedules. Being specific in the agreement’s wording also helps avoid miscommunication when determining what your company and what insurance considers a triggering disability event.
Paying for the unexpected
Companies do not hold all their wealth in liquid assets that you can drain when someone retires, so a buy/sell agreement may help establish means of affording these buyouts or ownership interests. Permanent whole life insurance may sound expensive but can cover all your bases depending on how your agreement words things. In regards to retirement, revenue percentage over a number of years provides a stable payout while also avoiding company instability.
A buy/sell agreement works for you exactly the way you want it to work. By relying on your resources and advisors, you can draft an agreement that protects your company’s legacy and each other’s business interests in the good times and bad.