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Buy-Sell Agreements Minimize Confusion when One Partner Leaves or Dies

By Howard C. Stross
December 08, 2011

A buy-sell agreement is a tool for business and estate planning in Florida that reduces confusion over ownership of a business should one of its partners or shareholders die or leave the business.

Many times there is much confusion over who has the right to inherit or buy a business owner’s interest in the business if that owner wants to retire, becomes mentally incapacitated, or dies.  Without an agreement as to who has the first right to receive or buy the business, the remaining business owners can get stuck with a new partner they don’t like or have to pay far more than the interest in the business is worth to prevent such a situation. Or an heir of a deceased partner/owner may be forced to take far less than the interest in the business is worth if they don’t want to be a partner or owner.

Resolving these issues can be very frustrating and expensive, and may have a big effect on the value and continuation of the business.

A buy-sell agreement solves this problem by providing the owners of a business the first option to buy out another owner’s interest in the business if he or she wants to retire, dies or becomes mentally or physically incapacitated. The best time to enter into a buy-sell is at the start of one’s business; however, a buy-sell agreement can be entered into at any time.

Your business lawyer or an attorney familiar with estate planning in Florida can help you draft an agreement and advise you on what terms to include in it. The following estate planning checklist for buy-sell agreements will help you know ahead of time what things to consider and what questions to ask your lawyer.

Estate Planning Checklist for Buy-Sell Agreements:

  • Should the agreement be structured as a redemption or cross-purchase agreement?
  • Should the agreement be structured to require the seller to sell and the buyer to buy, or should the agreement give the buyer an option to buy?
  • Should the death of an owner cause an automatic buyout of the owner’s interest, or should the deceased owner’s family be allowed to remain as the successor owner?
  • Should the purchase price from the estate or the beneficiaries of a deceased owner be addressed? If so, what about the buyout price to a disabled owner or an owner who retires or is terminated as an employee of the business?
  • Should the buy-sell agreement provide that a buyout be funded by life insurance or some other method such as an installment sale?
  • If life insurance is used to assist in funding the purchase price, should all of the life insurance proceeds be used to purchase the business interest or may part of the proceeds be used to help the business recover from the loss of one of its owners?
  • Should there be a covenant not to compete?
  • Should the agreement apply only to the current owners or should it be binding on all owners throughout the life of the business entity?

Should the agreement be reviewed annually, especially to determine whether the price to purchase a partner’s interest should be changed?

Would you like more information?

We hope this estate planning checklist has been helpful, but if you need more information about buy-sell agreements or estate planning Florida, we recommend the following pages on this website:

Estate Planning
Business Law
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