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Estate Planning for Companies: Do You Have a Buy-Sell Agreement?

Charles S. Liberis Dec. 1, 2017

The owners of successful businesses in Florida need to set up a plan for their businesses that will go into effect when they die. A buy-sell agreement will be an important part of this plan.

The buy-sell agreement creates a way to redistribute the interests of an owner if he or she becomes incapacitated or dies. An agreement like this will also work in the event that the business owner gets divorced or declares bankruptcy.

What kinds of buy-sell agreements are available?

Buy-sell agreements appear in different forms. Business owners will therefore want to understand these different forms to select and craft the agreement that best suits their needs.

One kind of buy-sell agreement is the “cross-purchase” agreement, which allows the remaining business owners to buy out the departing owner. Another kind of agreement is the “stock-redemption” agreement, which gives heirs and relatives stock shares in the company.

Buy-sell agreements also offer a plan for determining the value of the business. For example, appraisers can value a business via:

  1. The “asset approach” by looking at the assets owned by the business;

  2. The “income approach” by looking at the income of the business; or,

  3. The “market approach” by looking at the current market value of the business.

Another potential matter of concern for business partners involves the raising of capital to pay for the deceased partner's interests. One way to do this is for each associate to buy a term life insurance policy that names the other owners as beneficiaries.

Makes sure your buy-sell agreement covers all your bases

The more business owners and business partners learn about buy-sell agreements, and the different things that these agreements should include and prepare for, the better they'll be able to prepare their families for the day they are gone.

Remember: Your business has a great deal of value in that it provides income for you and your family. As such, your buy-sell agreement should be geared to preserve the value of your business so that it continues to offer a benefit to your family and heirs.