When a partner in a business dies, the disposition of his or her business interest often creates many problems for his heirs as well as the remaining partners. There are many important issues that have to be dealt with. Who will purchase the shares of the deceased? What is a fair price for his shares in the business? Where will the funds come from?
These problems are easily resolved if a buy-sell agreement has been established.
A buy-sell agreement provides that:
Someone (e.g., the business entity, key employee, or the surviving partners) will purchase the deceased owner's shares at an agreed-upon price.
The deceased owner's estate is obligated to sell the shares at that price.
This example illustrates the need of a buy-sell agreement.
Acme Metric Hammers is a partnership with three owners; George, Howard, and Stanley. If George was to pass away, his shares in the company would be passed on to his son Harry. Harry does not have experience in running the business and both Howard and Stanley dislike the idea of sharing the company with him. It is reasonable to assume that if one of the other two partners passed away, George would feel the same way about their heirs. Setting up a buy-sell agreement will ensure the remaining partners attain full control of the company. It also assures the deceased that his heirs will receive a fair price for his shares.
Where will the funds come from?
All that remains are the funds to purchase the deceased shares. Having to suddenly liquidate a large part of the business to pay off the heirs of the deceased can be very damaging to the company. In the case where a partner passes away, the death benefit will help pay for his shares in the company.
With no money to lay out and with very minimal risk, Life Insurance is the most effective and cost-efficient strategy to help partners plan for the future.
Please contact us today for your no-obligation consultation. We look forward to helping you and your family.
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