A Buy/Sell Agreement is a formal agreement that ensures if a trigger event occurs, the intended owner buys the business and the beneficiary sells the business at a price predetermined and agreed by all.
The remaining business partners can pay the estate the agreed amount without having to sell the business they have worked so hard to create.
Because the agreement is a legally binding contract, this prohibits any heirs from entering into the business arrangements. The heirs are protected as the remaining partners have the funds to buy out the remaining share.
Generally, an insurance policy will provide the money required by the buyer and seller alike when a trigger event such as death occurs.
Generally, when business owners borrow funds from a bank, the loan is secured by personal assets such as their family home. Only when the loan is fully repaid is the guarantee released.
Guarantor protection insurance protects the guarantor and their estate. It also protects their business.
However, as many banks will treat the death or serious illness of a business owner as a default, this can lead to a bank seeking repayment, or at least re-negotiation of the loan.
You can mitigate this risk with personal or business insurance.
The following four events should be insured through personal and business insurance:
- permanent disability
- temporary disability
- serious illness