Buy and Sell agreements - secure your company's future
Content provided by Sanlam. See Financial Solutions for Business Owners, for tailormade financial advice.
When you have put so much into your own business, it's important to think about the company's future and your dependents' security, at the event of your or your business partners' death or disability. This is where a Buy and Sell Agreement would come into play.
A buy-and-sell agreement is an agreement among the owners of a business entity, obligating themselves on their deaths or in the event of disability, to sell their interest to the survivors and likewise committing the survivors to purchase the deceased member's (s') interest.
In most cases, the personal assets of the various partners are tied up in the firm, as profits are often kept in the business. Life assurance is the only safe and sound way of creating the necessary funds in terms of the agreement.
The members/partners/shareholders enter into a contract in terms of which they effect policies on each other's lives. The co-owners other than the assured should therefore pay the premiums.
If a credit loan account exists, such a loan account can then be included in the buy-and-sell agreement by including the loan account amount in the cover on the life of the person to whom the loan is owed (creditor).
The benefits of a Buy-and-Sell agreement
In the absence of a bona fide agreement, the surviving partner may find himself faced with serious problems. Such an agreement, funded by insurance, provides hard cash the moment it is needed.
The Buy-and-Sell agreement eliminates uncertainty, since the surviving partner(s) pay(s) fair value for the acquired share of the business and hence the needs of the deceased partner's heirs are also met. It gives the surviving owners immediate, full and unhindered ownership of the business.
It prevents the business from being drained of its capital resources. Instead of borrowing money and paying 100c in the rand plus interest, a life policy is usually much cheaper and readily available.
Don't allow the death or disability of a business owner be its downfall.
Copyright © Sanlam, 2016