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Stryde gives business owners the same AI-powered tax analysis.

What is a Buy-Sell Agreement?

While business owners hope to be successful enough that they have cash on hand to buy a partner’s interests out after an unexpected death, that’s not always the case. Even if it is, a lack of pre-planning can create an unfavorable situation when valuing the business and determining the method of payment.

Buy-sell agreements create a two-pronged approach to ensure the continuation of the business after the death of one of the owners. First, these agreements spell out the means by which the business will be valued at the time of an owner’s death. In addition to establishing

an easy to define valuation method, they also (when properly structured) provide the funding with which the surviving owner(s) can purchase the deceased owner’s

shares, thus allowing business and personal capital to remain untouched.

One of the ways that a buy-sell agreement can fund the purchase of the interests is by establishing the

purchase of a life insurance policy for each owner. All or a portion of the death benefit is then used to buy out the interest based on the valuation method chosen in the agreement.

Insurance isn’t the only way to fund a buy-sell agreement. Businesses can also choose to fund them with annuities, which may be preferred if one or more of the business owners happen to be uninsurable.