Oregon Buy Sell Agreements
Buy Sell Life Insurance is a type of agreement funded by life insurance to protect your business and your family in the event that something happens to you or a business partner. Whether it is called a Buy Sell Agreement Life Insurance policy, a buyout agreement, or simply a “business will,” it is, by design, a Life Insurance Policy between co-owners of a business, which governs what happens if a co-owner dies.
History shows that the death of a small business owner can cause incalculable issues within the company and can seriously disrupt income. A buy sell agreement will prevent these potentially damaging problems from sinking your business.
Pibal Broker Tip! If you are a business owner with a partner or multiple partners, Buy Sell Life Insurance can protect you in case of partnership changes.
Find out more about how Buy Sell Life Insurance can protect your business.
There are two basic Buy Sell Life Insurance policies:
- Cross-purchase plan – Each owner purchases a life insurance policy on each of the other owners. Should an owner die, the surviving owners use the death benefit to purchase the deceased owner’s share of the business.
- Entity purchase (also known as a stock redemption plan) – The business purchases separate life insurance policies on the lives of the owners. The business will pay the premiums and will be the owner and beneficiary. When an owner-employee dies, his or her share of the company will pass to the heirs of the estate. In an entity redemption plan, each owner enters into an agreement with the business for the sale of their respective interests to the business.
A buy sell agreement among partners (or owners) can be used as a contract that obligates, upon the death of the owner, that the deceased executive’s estate sell their portion of the business, and the remaining partners purchase the business interest of the company (at a specified price). The heirs are relieved from worry about running the business; they receive a fair price for the sale while avoiding the delays of probate. The surviving partner(s) don’t have to worry about interference from possibly unwanted partners (heirs); everyone knows the purchase price beforehand, and the business remains upright with clients and lenders.
A buy sell agreement is typically funded through a Term Life Insurance Policy. This term life policy will provide funding to the surviving business partner in order to buy the business. In this most basic arrangement, the insurance policy provides immediate payment so that the business can continue. The agreement can be written to allow the surviving partner to buy out the deceased partner's share in the business for fair market value (at a specified price).
Important note: With a buy sell agreement, the business partners must have clearly defined guidelines for how the business value is determined and must specify the rights the remaining partners will have. In addition to the issue of the death of a partner, a Buy Sell Agreement should account for other potential scenarios, such as permanent disability of a partner or a partner’s option to sell his/her share of the business, etc. We can work with your CPA and business attorney to ensure the plan you choose will best fit your specific needs.
Many businesses already have a Buy Sell Agreement in place, but it is frightening to know how many businesses do not have a properly funded Buy Sell Agreement. Ask us today about properly funding your Buy Sell Life Insurance policy.
Call us now at 503-287-8808 to see how simple and affordable it is to prepare this important piece of your financial foundation.