Reasons why you should enter into a buy sell agreement:
So you have taken the sensible step and taken out appropriate levels of business succession insurance for you and your business partners – why do you now need a legal agreement to document this?
1. To ensure that the continuing business partners retain control of their company.2. To ensure that the intended recipients of the insurance proceeds actually receive them.3. So that all the parties agree the purchase price.4. Avoidance of Valuation Disputes
1. To ensure that the continuing business partners retain control of their company.
To ensure that the continuing business partners retain control of their company.
2. To ensure that the intended recipients of the insurance proceeds actually receive them.
Normally, a party’s business interest will pass to their spouse through their Will. This means that their spouse will become a co-owner of the business which presents a huge problem for 2 reasons:
- you might not want to carry on business with your deceased business partner’s spouse; and
- given a choice, your deceased business partner’s spouse would probably prefer to receive the cash rather than remain involved in the business.
The insurance and legal arrangements must jointly ensure that “the right money is paid to the right person at the right time” (e.g. the company, creditors or the remaining business partners).
3. So that all the parties agree the purchase price.
The easiest time to negotiate the purchase price is when all of the business partners are alive – at that point nobody knows whether they will be “the first to die or the first to buy”.
4. Avoidance of Valuation Disputes
At the time of a claim, the pre-agreement provisions in a buy sell agreement will serve to avoid expensive valuations, legal and accounting advice, and disputes with respect to the purchase price.
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Please note: “This publication is for information purposes only and does not constitute legal advice. If you have any questions about this or any other commercial legal issue, please contact Helen Kay at Rise Legal.”