Most business owners put a lot of time and effort into their businesses. In many cases they would like to leave the business to their family, or at the very least, ultimately sell the business for a future value. However, life events can interfere with their wishes. Because of this, it is important that the owner has a buy and sell agreement which will smoothly transfer the business to the heirs, but will also help establish future provisions for the family, should they retain the business.
The solo owner can engage into a buy and sell agreement (Called ONE-WAY BUY AND SELL (BSA), or, UNILATERAL BUY AND SELL) with:
- Their children
- A trust
- A competitor
- Employee or employee group
- Others who may be interested in the business
The reason for the BSA is to provide liquidity to family, and to have an orderly transfer of the business.
Leaving the business to:
Children: Not all children are capable of running a business. In some situations, the inheriting children do not have the experience, the want, or the ability to run the business. Even if they inherit the business and decide to sell it, they will be at the mercy of the market whims at that time. Competitors will try to buy the business for pennies on the dollar.
Spouse: The issues apply as above. However, in many cases, the spouse is trying to replace the income of the owner. There may be a sense of motivation to sell the business for the security of cash.
Competition: This will allow the family to receive the business value based on the agreed price in the agreement.
Of course, if the family members are very active in the business and want to run the business, a buy and sell agreement can be set up so the children will buy the business for a stipulated price. The spouse will receive the value of the business This can be done by funding with life insurance, or through the cash flow of the business.
There may be situations which not all of the children want to be in the business. If that is the case, testamentary provisions can be made to equal out distribution of assets if that is a concern. Continue reading “Should A Sole Owner Of A Business Have A Buy and Sell Agreement?”
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