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Buy-Sell Agreement

What is a Buy-Sell Agreement?

A buy-sell agreement is a business planning tool partners can use to prepare for the unexpected. It lays out what happens to an individual’s share of the business if they die or leave the company.

Why business partners set up buy-sell agreements

Ideally, your business partner will be able to continue working alongside you so you can grow your business together. But if something happens to them, a buy-sell agreement can make a big difference in what happens next.

Let’s say your business partner passes away. Without a buy-sell agreement in place, their stake in the business could go to their spouse or children — people who may or may not have knowledge about and interest in the business.

At its core, a buy-sell agreement quantifies what an individual’s stake in the business is worth and what should happen to that stake if they leave the company or die. In most buy-sell agreements, the other business partner(s) gets the option or is required to buy the now-incapacitated partner’s share at that point.

Using life insurance to fund buy-sell agreements

The buy-sell agreement can streamline transitions and ensure that business control stays in the hands of the people who care about the company, but it can also put financial pressure on the business partner(s) left behind.

That’s why many business partners choose to take out life insurance policies on their partners. With life insurance, if their partner dies, they can use the policy’s death benefit to fund the buy-sell agreement.

Some people get life insurance with a death benefit in excess of the buy-sell agreement so they can use the extra money to ease the transition in operations without their business partner, too.

Get an instant online quote for life insurance.
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