Posted on Wed, Jul 23, 2008
Yardley News

Commerce Connection:

Business Succession Planning: Buy-Sell Agreements

Do you or someone you know own a business? Business succession planning, including ownership succession and management succession, is critical to business owners. Both older business owners approaching retirement as well as younger business owners, whose failure to plan could have a greater financial impact, should be advised to plan for the inevitable change in ownership. The buy-sell agreement is often an integral part of such planning.

A buy-sell agreement protects each owner's interest, preserves value, and prevents later disputes when an event of transfer occurs. A transition event could be a voluntary departure, disability, retirement or death. Examples of such events include the following:

• One of several owners is in a skiing accident, rendering the person incapable of working.


• A disgruntled owner sells his interest to a stranger. The executor of a deceased owner wants to sell, but the company lacks funds to purchase the deceased owner's share.


• One of the owners gets divorced


• Without a buy-sell agreement to address these issues and assure orderly transition, the resulting chaos could be financially devastating for any business owner.

Critical Note: How do you value your business? Once a value is established, how do you fund a buy-sell agreement? Business valuation is one of the most problematic issues surrounding the buy-sell agreement. There are several business valuation methods and it is important that an appropriate method be implemented. As pertains to funding, if a cash or financial sale is not feasible, a sale funded by life insurance may best address the funding of a buy-sell agreement.

Estate Planning Law Office of
Yvette E. Taylor-Hachoose
1234 River Road Washington Crossing, PA 18977
www.ythlaw.com
215-321-4033