Generally business holders take out an insurance policy to cover themselves. If an incident takes place, that sparks the obligation to pay out under the suitable policies of insurance then the buy/sell agreement comes to work.
A buy/sell agreement or buyout agreement is a kind of Business succession agreement that are build up between co-owners of a business who accept to buyout the other’s share if retiring owner can no longer work for the business.
A buy/sell agreement comes into existence once definite incidents or triggers in the buy/sell agreement happen. Normal triggers for buy/sell agreement are uncontrollable incidents such as critical illness, death, and bankruptcy. But retirement and divorce are different incidents that can be nominated for a buy/sell agreement. Once a trigger incident happens then the party who has experienced the incident accepts to sell their interest in the relevant business to their other business holders.
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It gives financial assurance for the unaffected or non-injured business owners as well as to the injured business holder or the estate of a dead owner and notably lessen the risk of protracted legal disputes. It is always good to hope for the best and plan for the worst so, a buy/sell agreement is always advisable for a business owner.
Things to think about in a Buy/sell Agreement
It should specify the situations that will trigger the shift of ownership from the deceased or injured business holder to the non-injured business holder. It should also describe how the business will be valued to decide the value of the retiring/ departing owner’s shares or interest. As an alternative, an autonomous valuer can evaluate the value of the business at the time of the trigger incident.
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