What if something happened to you or your business partner and one of you were unable to continue running your business?
A buy-sell agreement may be the solution you need for your rural business to protect your livelihood should you or any of your partners pass away or experience a trauma or disability.
This legally binding contract between business partners, facilitates the sale of business ownership when certain ‘trigger events’ including death and disability occur.
“While the purchase of shares may be funded personally, it is commonly financed by insurance, which provides ready capital for emergency buy-outs and it can also be a more cost-effective option.”
But what are the chances?
You may be surprised to learn that for businesses with two partners, who are currently aged 45, there is a 55% chance of death, total and permanent disability or trauma occurring before age 65 for one of those partners. While for three business partners it rises to 70%, and for four business partners it is a whopping 80%1.
Insurance for Funding
If you suffer from accident, illness or death, you (or your estate) won’t be forced to sell your share of the business in what is essentially an emergency situation. It also protects your business partners from having to operate your business with consideration of any terms imposed by your estate or having to work with an unwanted ‘new business partner or from having to suddenly raise funds to pay you out.
How does a buy-sell agreement through insurance work?
Each partner signs a legally binding agreement enabling the sale and purchase of business equity in the event of death, disability or trauma.
Each partner also takes out an insurance policy, with the agreement stipulating that if a trigger event occurs, the funds received from the insurance policy will be used to payout their share in the business. This means you, or your estate, would receive the payment, while the remaining partners would receive your shares.
For more information about solutions to protect your business or buy-sell agreements contact me on 0438 946 638 or email email@example.com
1 Australian Bureau of Statistics, 2005 Australian Life Table.
Phillip Dibben is a financial adviser at Active Financial Management. Active Financial Management and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306 trading as Fortnum Financial Advisers.
This information (including taxation) does not consider your personal circumstances and is of a general nature only. You should not act on the information provided without first obtaining advice specific to your circumstances.