Buy / Sell Agreement

By on February 24, 2013

Buy / Sell Agreement

(also known as a Universal Share Agreement)

Why Bother?

A Buy / Sell agreement provides a structure to deal with the death or disability of a business partner. The remaining owner(s) must decide how the business will continue.

  • You can close down the business
  • You can continue the business with the new owner (i.e. the spouse, child, or lawyer of the deceased owner)
  • You can sell your shares (who will buy them and at what price?)
  • You can purchase the shares from the deceased owner’s estate. (Where will the money come from?)

 

What are your options?

A formal buy-sell agreement covers the terms of ownership and operation of the business. It usually deals with the death, disability, and retirement of one of the owners, as well as disagreements about running a business that result in an owner wanting out.

The agreement should include a clear formula, or process, for valuing the business to simplify the buy-out of an owner.

 

The best solution

Proper funding must be in place to ensure the agreement is viable. Without funding, agreements can fall apart. The remaining owners may not be in a financial position to buy the outstanding shares.

There are a number of ways to fund a buy-sell agreement:

  • you can start saving today
  • you can borrow the funds from a bank
  • you can take the funds from current earnings
  • you can sell assets, or
  • you can purchase life insurance and disability insurance to provide the funds needed.

Life insurance can be the most cost-effective solution to fund a buy-sell agreement when an owner dies. For a small monthly premium, life insurance guarantees that a large sum of money is available at your time of need.

 

How Marathon Can help

At Marathon we act like your quarterback. We will work with you, your lawyer, and your accountant, to help ensure you have a properly structured buy / sell agreement. We find many agreements that are not complete. In these cases we suggest wording for your lawyer to amend the contract to ensure you are properly covered.

Once that step is complete, we shop all insurers in Alberta to ensure you have the best coverage at the best price possible. We find that most employers are focused on their companies and forget to plan for the unexpected. We remind you of these conversations.