business continuity for perfect partnerships
There is a smart solution for an ideal outcome in tragic times. It would be wise for the co-owners to enter into an agreement in terms of which they undertake to purchase the interest of their fellow co-owners, should any of them die or become permanently disabled. This agreement is known as a Buy-and-Sell Agreement. It is designed to ensure the continuity of the business under these circumstances.
Let’s look at the advantages of having a proper Buy-and-Sell Agreement:
FOR THE REMAINING PARTNER(S)
- If you are still active in the business when your partner dies or becomes disabled, it can prevent the business from being liquidated.
- If the business is to continue, it will allow you to take over your deceased/disabled partner’s interest at a previously agreed price. It therefore secures a willing buyer and seller at a fair price, which is to the benefit of both the remaining partner(s) and the deceased/disabled partner's heirs/family.
- You will avoid having to do your deceased/disabled partner’s work while your partner’s heirs/family continue to get your partner’s share of the profits.
- You have the opportunity to decide whether or not you need a new partner if your present partner dies or becomes disabled.
- It allows you, and not your partner’s heirs/family or executor, the right to select a new partner if necessary.
- The partnership does not have to be valued by the partner’s heirs and their attorneys.
- It enables you to settle promptly and fairly with your deceased/disabled partner’s heirs/family, and vice versa.
- It provides the right amount of cash for this purpose at the right time for a reasonable price.
- You do not have to liquidate any personal assets to buy out the deceased/disabled partner’s interest.
- You do not have to borrow expensive money and incur debt which will eventually have to be repaid.
FOR THE DECEASED/DISABLED PARTNER
- Disability cover will ensure that the disabled partner is looked after.
- It provides certainty as far as estate planning is concerned.
- It ensures that the estate receives fair value for the business interest.
- It provides a ready amount of capital in the estate to take care of beneficiaries.
** Buy-And-Sell Agreements are also widely used for similar reasons between members of a close corporation and shareholders of a private company. It even applies to a sole proprietor, who may have a suitable employee in the business that would like to take over the business on the death/disablement of the owner.
Just remember, tomorrow may never come but your business can carry on.
For more information with regards to a Buy-And-Sell Agreement click here