The Buy-Sell Agreement
One of the tools we have been frequently using with our small business owner clientelle is the buy-sell agreement. A buy-sell agreement is a legally-binding contract that prepares for the future sale of your business, or for the purchase of a co-owner’s interest.
The three types of buy-sell agreements are:
- Entity Buy-Sell Agreement – The business enters into a written agreement with the owners to purchase the interest of each owner in the event of disability, death, divorce, or departure of a co-owner.
- Cross-Purchase Buy-Sell Agreement – Individual owners agree to purchase the interest of the other owners. Each individual is the owner and beneficiary of a life insurance policy on each of the other owners, and the policy proceeds are used to pay the purchase price.
- Buy-Sell Agreement Using Partnership Administration Succession Strategy (PASS) – Individual owners form a separate partnership and the partnership acquires life insurance policies on all the owners and administers the provisions of the buy-sell agreement. This approach can be very advantageous, due to the tax and accounting rules that apply to partnerships.
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Integrated Financial Concepts (IFC) is an SEC Registered Investment Adviser. Registration with the United States Securities and Exchange Commission does not imply a certain level of skill or training. The content contained in this article is for informational and educational purposes only and is not intended to serve as specific financial, accounting, legal, or tax advice, nor is it a recommendation to buy or sell any security or to adopt a specific investment strategy. For advice specific to your personal or business situation, you should meet directly with a qualified financial adviser. Past performance is no guarantee of future results. Our current Form ADV Part 2 disclosure is available for your review upon request.