Buy-Sell Agreements

Buy-sell insurance provides the funds for surviving shareholders/partners to purchase the shares/interest of a decreased shareholder/partner, usually from the deceased's estate or family.

A buy-sell agreement funded by a life, disability or critical illness insurance policy can accomplish the following:

	Help eliminate potential lawsuits stemming from the business valuation.
	Help assure the continuation of the business for the remaining partner(s).
	Allow the surviving partner(s) to maintain control of the firm by requiring the deceased partner’s interest to be sold.
	Help assure that the partner’s heirs are quickly paid in full for their share of the firm, even if the surviving partners are not able to run the firm successfully.
	An insured Buy/Sell agreement assures employees, creditors, suppliers and customers that the death, disability or critical illness of a business owner will not disrupt any day-to-day operations of the business.
	Working capital in a business remains untouched.

Criss-cross insurance is a common practice.  Shareholder A is the owner and beneficiary of a policy on shareholder B, and pays the premiums, while shareholder B has a similar policy on shareholder A. But because premiums must be paid in after-tax dollars, it could be much less costly if the insurance policies are owned and paid for by the company rather than by the shareholders. Since the corporate tax rate for small businesses is generally less than 25 percent while the marginal tax rate for the shareholders may be 40-50 percent, the net cost of insurance could be cut in half if the policies are owned by the company.

In either case, the spouse or estate of the deceased partner receives prompt payment at a fair value price for its holdings in the business, while the surviving partner is provided with the funds to buy complete ownership of the business.

Make Buy/Sell Insurance part of your business plan to secure the future of your business.