Protect the future of your business

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A Buy and Sell Agreement will ensure a seamless transition of ownership and protect the financial future of the business, while the deceased’s family receives an agreed price for their business interest.

What is a Buy and Sell Agreement? It is a legal and binding agreement between business owners that allows for the purchase of the disabled or deceased owner’s share of the business through a life assurance contract that pays out a lump sum on disability or death. In legal terms this agreement is:

• A commitment from each business owner that stipulates that if they become permanently disabled or die, their interests will be sold to the remaining business owners, who in turn, undertake to buy their interest in pre-agreed proportions.
• An agreed purchase price for each business owner’s interest in the business, or a predetermined formula for calculating this value at the time of disablement or death.
• An undertaking by each business owner that a life insurance contract be taken out on their life to provide the remaining owners with the necessary funds to purchase the interest of any disabled or deceased owner.
• Formal agreement on the restrictions and rights of the business owners under the policies.
• Provision for cession of the part-ownership of the policies held on the lives of the surviving co-owners.
• A description of how and by whom the contributions are to be paid.
• Required provisions for amending, revoking or terminating the agreement.
• A description of the manner in which payments are to be made to the deceased’s estate if life insurance proceeds are insufficient to meet the full purchase price.

If any of the business owners to the agreement suffer a permanent disability or die, the Buy and Sell Agreement underpinned by a Life Insurance contract ensures that:

• The interests and rights of every owner in the business have been properly specified and the value determined.
• The remaining business owners are financially able to retain control of the business. This eliminates any interference from outside parties in the running of the business. The heirs of the deceased are ensured of a fair and predetermined price for the deceased’s interest in the business. This could also include the option to purchase the deceased’s loan account from their beneficiaries, if required.
• The business remains a going concern. The goodwill of all stakeholders and the creditworthiness of the business are preserved.
• No estate duty and capital gains tax will be levied on the proceeds of the Life Insurance contract, provided all the necessary legal requirements are met.

If you do not plan properly, your disability or death may result in the liquidation of the business, outside parties buying it, or your family members may have to become actively involved in the business. By using a Buy and Sell Agreement, funds are available to assist with a smooth transition in the business.

Every business should have a plan to deal with the loss of any of its owners. A Buy and Sell Agreement will make it easier to sleep at night.