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Personal Finance 101 – Funding Your Buy-Sell Agreement

Part of any good business plan is an exit strategy if the unexpected happens.  A good Buy-Sell Agreement should anticipate certain unfortunate but foreseeable events, and make sure a fair and reasonable plan is in place. When a triggering event occurs, everyone should be fully comfortable and prepared to move forward with the plan. The most critical detail of the Buy-Sell Agreement to the company’s survival is how to pay the purchase price for a departing owner’s interest.  If the company or other owners do not have adequate assets, cash reserves, or credit available to fund the payment obligations, then they cannot fulfill their side of the agreement.  This isn’t good for anyone – the departing owner (or his estate and family), the company itself, or the remaining owners. Insurance. Since death and disability are two of the most basic triggering events in any Buy-Sell Agreement, life and disability insurance can be the most attractive methods for funding the payment ...

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Personal Finance 101 – Who Buys The Business?

Part of any good business plan is an exit strategy if the unexpected happens.  A good Buy-Sell Agreement should anticipate certain unfortunate but foreseeable events, and make sure a plan is in place that is fair and reasonable for the owners and the business itself.  One important detail to include in any Buy-Sell Agreement is: Who has the right to buy an owner’s interest after a triggering event occurs?  There are a few main options discussed below. Redemption. In a Buy-Sell Agreement using the Redemption structure, the business agrees to purchase (“redeem”) the interest of an owner after a triggering event.  The owner agrees that he, or his estate, will sell the business interest back to the business for the agreed price.  The main advantage of the Redemption approach is that it is usually the simplest form of buy-sell transaction, and when there are many owners involved, the simplest structure can sometimes be the best. However, there are certain key ...

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