Buy/sell agreements

One method to overcome the first part of this problem is to use a buy/sell agreement.

A buy/sell agreement is a legal agreement made between owners of a business. It generally states that on the death or incapacity of one of the owners, the remaining owners will buy the deceased or disabled owner’s share.

The second part of the problem is that although the remaining partner may want to buy the deceased person’s interest, they may not have the financial ability to do so.

This can be solved by taking out an appropriate insurance policy.

A life insurance policy could be taken out on your life for $450,000 for the specific purpose of providing the money for Bill to buy your share of the business if you were to die or become incapacitated. How this policy is owned will depend on the arrangements you set up in the buy/sell agreement. See the Insurance Planning module for more information on personal insurances.