Thursday, August 17, 2017

Why Small Business Owners Need a Buy-Sell Agrement

What happens when a partner in a business dies?  How does this impact the surviving partner?

Let's create a scenario.  Bill and Mary open a business and own it 50/50.  The business is doing well.  But one evening on his way home to his family, a truck crosses the center line and hits Bill head on.  Bill dies.

After Bill's funeral, Mary realizes that she's now in business with her new partner, Bill's widow, Susan.  Susan knows nothing about the business but insists that she can "get to know how things work".  Mary needs to get back to running the business, not teach Susan, who has been a stay-at-home mom for the last 10 years, the workings of her company.

A few months pass and Mary is doing all the work, with the interruptions and input from Stanley, Susan's new boyfriend.  Stanley likes to come around and let his friends know that he's running a business now.  Mary is confused and angry. 

All of this could have been avoided if Bill and Mary had completed a buy-sell agreement and funded it with life insurance.  In a nutshell, the agreement would state that if one partner died, the other would have life insurance proceeds to buy the deceased partner's share of the business. 

Mary could have given Susan enough money to pay for Bill's share.  If properly structured, Susan could pay off her house and Mary could keep the business going without the interference of others who have no knowledge of the company's goals or values. 

If you have a business partner, have you considered what would happen if one of you died?  We can help you with a buy-sell agreement and keeping it funded with life insurance.