It is now more important than ever that business owners plan for those contingencies that can dramatically affect their lives and the lives of their closest family members. Thoughtful Business Continuation planning will set these business owners on the right path and help resolve anxiety that may be causing them to lose focus. Planning can be completed on a component (modular) basis or in a comprehensive approach using EPIC™ software from Veracity Advisers.
This is an agreement by and between the shareholders (or equity partners) of a privately owned business and, perhaps, the business itself. The agreement establishes the mechanism for the purchase of stock following the future illness, disability, or death of one of the owners. In the case of a corporate joint venture, a buy-sell agreement also establishes the value for break-ups or for circumstances calling for one corporate venture partner to buy out the other partner.
Buy-sell agreements reflect the documentation of agreements between a company’s owners and the company itself. These agreements relate to what will happen in the future if a provision of the agreement is “triggered” and require future thinking if they are to provide reasonable resolutions for future transactions that may result from their operation.
These agreements are legal contracts. What is not clearly understood, however, is that they are also business valuation documents. We refer to buy-sell agreements this way because they represent contractual agreements between the respective parties concerning the following:
Business objectives - The agreements are designed to facilitate business objectives of companies and their shareholders including:
- Limiting ownership to an existing group or family (or multiple families)
- Maintaining relative ownership between or among groups of shareholders
- Integrating the operation of a buy-sell agreement witht the estate planning of one or more owners
- Limiting the ability of parties to the agreement to sell their shares, except pursuant to the terms of the agreement
- Determine how the valuation of business or other ownership interests will be determined in future transactions
- They also dictate the terms upon which future transactions will occur
A legally prepared buy-sell agreements can also protect your descendants by giving them an opportunity to turn your shares into cash. Additionally, it's important to fund a plan to fund the transfer of ownership of the business by considering a life insurance policy and a disability income insurance policy for that specific purpose.
Protect Key Employees
Should you lose a key employee because of illness, disability, or death, the financial impact to your business can be immense. You may lose income, credit, goodwill, and incur costs to replace the employee. But you can help protect your business from such a loss Let us review the various strategies which provide such protection for your business.