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Buy-Sell Plans
- Selling the Business to Co-Owners, to an Employee or to a Third Party
Without a capable
family member to continue the business, it can be difficult to preserve
the value of a small business interest, unless a market for the business
is created prior to the owner's death or disability.
When a potential buyer
for a small business interest can be identified, for example a co-owner,
a key employee, or a third party, advance planning can provide for an
agreement to sell your business at an attractive price. This sale agreement
is often referred to as a "Buy-Sell Agreement."
There are four common
ways to fund a Buy-Sell plan at the death or disability of a business
owner.
- Cash Method:
The buyer(s) could accumulate sufficient cash to purchase the business
at the owner's death. This could, however, take several years, while
the funds might be needed sooner.
- Installment
Method: The purchase price could be paid in installments after the
owner's death. For the buyer, this could mean a drain on business income
for years.
- Loan Method:
Assuming that the new owner(s) could obtain a business loan, borrowing
the purchase price requires that future business income be used to repay
the loan plus interest.
- Insured Method:
Only life insurance can guarantee that the cash needed to complete the
sale will be available exactly when needed at the owner's death, assuming
that the business has been accurately valued.
The following techniques
can be used in conjunction with your buy-sell agreement: Cross-Purchase,
Stock Redemption, and Entity Purchase. Each situation is different; our
analysis will help you decide which method is preferable for you.
To set an appointment
to discuss your individual situation, please call us at (800) 925-2050.
Alternatively, you can complete our short form,
to obtain specific information.
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