MARCH 17, 2000

Estate Talk The Buy-Sell Agreement: Helping Your  Small Business Survive Building and operating a small business can be rewarding, but in order to get a business to the place where it can provide security, the owners must invest an incredible amount of time, effort, and capital. Having a business partner can ease the burden, but the partners are usually dependent upon each other. Often, if one partner suffers an untimely death or incapacitation, the survivor may be forced to give up the business—unless the partners have prepared for such a situation.  For instance, a buy-sell agreement and a first-to-die life insurance policy would not only provide for the future of the business and the surviving partner, but would also guarantee the deceased partner’s surviving spouse that he or she will receive a fair share of the business' worth. A buy-sell agreement basically provides details for what will occur upon the death of one of the owners. (Buy-sell agreements can also cover situations involving an owner’s disability, retirement, divorce, or any other contingency.)  Generally, the agreement provides that the surviving owner will purchase the deceased owner’s share of the business. Either a set value or a formula determines the price of that share. In this way, the surviving spouse and family of the deceased owner can be compensated without having to force a sale of the business. To help the surviving partner purchase the deceased partner’s share, the buy-sell agreement may require the purchase of a life insurance policy. A first-to-die policy would provide death benefits upon the death of the first partner to die, thereby guaranteeing that funds will be available for the surviving partner to purchase the deceased partner’s share, regardless of which dies first.