To deal with some situations that frequently arise in co-founded businesses (death, disability, retirement, disagreement, divorce, bankruptcy, etc.) business owners will often use buy-sell agreements.
Buy-sell agreements specify what will happen to the interests of an owner, partner, or shareholder who passes away or becomes disabled. Should a business owner pass away or become disabled, the challenge with buy-sell agreements becomes; where do we get the funds to buy out the departing shareholder?
If your company's buy sell agreement requires that the other owners or partners purchase the deceased/disabled owner's interests, life or disability insurance (rather than personal funds, loans, or business assets) can be the simplest way to fund the buy sell agreement.
Provides a cash payment that other owners or partners can use to buy out a deceased or disabled owner’s share of the business.
Policy can be owned by the business - or each owner can own a policy on each of the other owners.
Helps prevent owners/partners from having to use personal funds or business assets to fund the agreement.
Your company has more than one owner or partner
You have a buy-sell agreement in place (or plan to)
You don’t want to use personal funds to purchase the interests of an owner or partner who can no longer run the company
There is a risk of unwanted heirs entering the business if their shares aren't bought out.
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