![\"reinhart](\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-content\/uploads\/sites\/48\/2013\/04\/reinhart20headshot.jpg\")
<\/p>\nBy Kelly Reinhart<\/p>\n
<\/p>\n
Business buy-sell agreements are one of the
\nmost overlooked but potentially most important
\nbusiness agreements for solely owned, family
\nowned or multi-owner businesses. Businesses
\nseldom discuss these with their advisors and it is
\nhardly an everyday topic.<\/p>\n
A buy-sell agreement is simply an agreement
\nbetween a company to buy and the owner to sell
\ntheir ownership in the company upon a life-altering
\nevent. Buy-sell agreements are written to protect
\nthe business and the owners when one of the owners
\ndies, becomes incapacitated, divorces, files
\nbankruptcy or similar life events.<\/p>\n
The agreements can be a separate agreement or an agreement written into the companies organizing documents such as operating qgreements in the case of an LLC.<\/p>\n
The importance of such an agreement to the business is that it protects the business from inadvertently becoming partners with the court, in the case of bankruptcy and incapacity, heirs in the case of death or ex-wife in the case of divorce. It is imperative for the owner’s piece of mind that their hard earned business doesn’t fall into the wrong hands and can carry on without any impact on the business.<\/p>\n
In the case of death it takes the guessing game out of how the heirs or beneficiaries of the deceased get their money out of the business, which is the typical motivation of heirs.<\/p>\n
The buy-sell keeps legal wrangling at a minimum by setting the price of the buyout in the format of a formula or a number that everyone can agree upon ahead of time. One of the most litigated issues in the case of divorce or the decedent’s estates is the fair market value of a business. The cost of setting up a buy sell is inexpensive when compared to the potential legal bills after an event has taken place.<\/p>\n
The key component to the agreement is how to fund the buyout. In most cases term life insurance is used to facilitate buyouts of deceased owners. The life insurance is normally purchased for the purposes of the agreement only and the company or the other partners are usually the beneficiary.<\/p>\n
Other funding sources such as bank financing, third-party financing, or simply owner cash can be used as well but they tend to be a less reliable source of funding. The life insurance premiums are typically not deductible by the business as a business expense but this is a small price to pay for sound business succession.<\/p>\n
In family owned businesses the buy-sell becomes an even more important business planning tool. It can be used to facilitate a buyout of one generation from the other using life insurance. It is typical in family owned businesses for only one or two of many in the second generation to be involved in the family business.<\/p>\n
In these scenarios if the business goes into the deceased estate then it becomes a hotly contested issue with emotions running very high between those involved in the business and those that are not. The buy-sell protects the specific family members involved in the business and give them a vehicle to carry on the tradition. The estate still gets the money for the business which can be split between all of the heirs so that the estate remains fair.<\/p>\n
Even a business with only one owner can benefit from a buy-sell agreement. It can be used to facilitate the sale of your business to a key employee, competitor or family member. The same issues exist for a sole owner except you have to work a little harder to identify a potential buyer. For most businesses this is a key employee.<\/p>\n
There are many variations of buy-sell agreements and many ways to plan for business succession using them. Caution should be used to find an attorney and advisor that have a good understanding of these agreements and business exit strategies in general. For something so relatively inexpensive and widely overlooked it should be on every businesses checklist.<\/p>\n
Kelly Reinhart, CPA has 20 years of experience and is the managing partner of Reinhart & Associates, Reinhart Champlain Wealth Management and Reinhart Bookkeeping & Payroll and can be reached at Kelly@reinhart-cpa.com or 306-4138.<\/p>\n","protected":false},"excerpt":{"rendered":"
By Kelly Reinhart Business buy-sell agreements are one of the most overlooked but potentially most important business agreements for solely owned, family owned or multi-owner businesses. Businesses seldom discuss these with their advisors and it is hardly an everyday topic….<\/p>\n","protected":false},"author":121,"featured_media":13245,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9,32],"tags":[],"class_list":["post-12144","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-reports","category-legal-accounting"],"yoast_head":"\r\n