More often than not, the disposal of a businesses assets upon one partner’s death or incapacity is not clearly and legally specified. the need for appropriate legal agreements between partners may seem self-evident, so why is that as many as 95% of businesses may not have the right kind of agreements in place?
Having a Buy Sell Agreement in place to ensure a seamless and equitable transfer of equity in the event that one partner has to leave the business involuntarily, can alleviate these problems.
Consider the following simple example:
Matt and Louise are partners in a small, successful dental practice. Matt and Louse had prepared a Buy Sell Agreement, and had agreed that the business was valued at $2 million. Matt suffers a fatal heart attack. He is survived by his wife, Marie and two young children.
Matt and Louise had taken out life insurance to fund the purchase of each other’s share of the business in the event of one of their deaths or incapacity, as per their agreement. When Matt died, Sarah was able to pay the $1 million from life insurance proceeds to Marie, representing Matt’s share of the business.
This meant that Louise was able to continue to operate the business and Matt’s wife Marie, who had no interest in being part of the business, and the children were provided for.
Buy sell cover makes sure sufficient funds are available to compensate the family/estate of the life insured for the transfer of the life insured’s share in the business to the surviving business owners, without further cost to the those same business owners. Funding the buy sell via life insurance (and TPD), means the financial impact on the business and surviving owners is minimised and the business can continue with minimal disruption.
The alternative is that the surviving owners have to dig into their own pockets and fund the buyout of the life insured’s family or estate or that they continue in business with the family or estate of the life insured. The latter is often not a desirable (or viable) alternative.
We work with you to understand your requirements and the best possible solution for you. They will then work with your accountant and lawyer to provide this solution. So please let us know if you have any questions.
This information is general information only. You should consider the appropriateness of this information with regards to your objectives, financial situation and needs.