In a previous blog entry I discussed the importance of the buy-sell agreement to any new business, especially when it is closely held (i.e. a small number of members/owners/shareholders). The question my clients ask me at this point is how can they finance the buy-sell agreement. Oftentimes they simply don’t have the money to buy their partner out, but there are ways around this.
One way is called key-person insurance. It is a life insurance policy on each member, either paid for by the other partners/owners/members/shareholders or by the company itself. Each member agrees in writing that the life insurance policy will be paid to the deceased/disabled member’s estate in exchange for the share of the company. The estate cannot demand more than the pay-out of the life insurance policy in exchange for the deceased/disabled member’s share of the company.
It keeps things simplified and doesn’t have the owners of a company seeing their creation falter crippled due to unforeseen problems. And it won’t lead to protracted court battles either, which is another benefit.
If you have any more questions about buy-sell agreements or business matters in general, feel free to contact my office at 1-844-695-1487 or email me at info@pokalalaw.com, and we can discuss the issue further.
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