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What is a buy-sell agreement?

I am not an attorney and I am not an accountant. So I am not giving tax advice or legal advice here.

Simply put a buy-sell agreement is a document inside your LLC, S-corp, C-corp.

It’s a legal agreement that you have with a partner that if something were to happen to them, like death or disability, there’s a buyout that can occur.

For example:

Ray Hooper and Les McGuire were two of my business partners. They were in Southern Utah visiting me for the day. That evening, June 8th of 2006, they flew from Southern Utah back up to Northern Utah. On their final approach into the Provo, Utah Airport they hit a microburst that threw the plane a thousand feet up and then straight down into Utah Lake. They died instantly. All three of them, Dwayne the pilot, and Ray, and Les, my business partners. All three of their wives for pregnant at the time.

I had buy-sell agreements in place. We had life insurance on their lives to cover the buyout of their spouses in that event.

If you don’t have the buy-sell agreement, and you have a business partner that dies, their spouse becomes your partner.  Is that what you want?

  • Do you have a business partner?
  • Do you have a buy-sell agreement?
  • How are you funding that buy-sell agreement within your company?
    • Is it going to be cash that you have in reserves?
    • Is it going to be a payout over time?

Are there ways that you and your business partner can be more empowered? If you died, would your business partner want to be partners with your spouse in the business moving forward?

One great way to take pennies and get dollars to be able to fund that buy-sell agreement is the purchasing of life insurance and thereby transfer that risk versus retaining it. Purchase life insurance to fund these key or buy-sell agreements.

If you have a business partner but don’t have a buy-sell agreement, work on that first with your estate planning attorney.  If you don’t have an estate planning or business attorney, we can make some references there and some referrals to assist you with that.

You can have a conversation with me, I can give you some things to think about in that area, and then you can take that to your legal advisor to be able to fulfill on that.

Put that buy-sell agreement in place or if you have one in place, then talk with me about funding it.