Insurance funded buy/sell agreements
Many business owners have life and total or permanent disability (TPD) insurance in place. We prepare agreements to support these insurance policies. The idea being, that the “surviving” business owner(s) secures ownership of the other owner’s interest in the business upon their death or suffering a TPD event, in exchange for the proceeds of the insurance policies going to the outgoing owner’s family.
A buy/sell agreement usually only deals with transfers of business assets which are funded by insurance proceeds – it does not deal with other transfers such as upon the retirement or expulsion of a partner. A properly drafted buy/sell agreement ensures that:
- The “outgoing” partner’s family receives the insurance proceeds in return for fully relinquishing any interest in the business; and
- The “surviving” partner retains control of the business and does not need to deal with the “outgoing” partner’s family in managing the business.
The actual transfer of the business interest is structured through options, so as to delay any CGT liability.
Without a buy/sell agreement, it is possible for the surviving partner’s family to become involved in the running of the business, despite not necessarily having the skills or experience of the outgoing partner, which can lead to frustration and dispute.
Increasing the saleability of your business
Businesses are usually more attractive when they are sold with comprehensive and useful operating procedures and policies. We draft the necessary documents to increase interest from prospective purchasers.