Does Your Business Have This Vital Document?

Does your business have a buy-sell agreement?

If you retire, become disabled or pass away unexpectedly, you’ll want to have the means to transfer your business interests. A buy-sell agreement lets you plan for many contingencies over which you would otherwise have little control.

Here are some of the advantages of having a buy-sell agreement:

 

  • Provides a framework for dealing with owner disputes and ensures a smooth transition of control and power to the owner’s successor.
  • Facilitates estate planning objectives and can help minimize certain estate taxes. Can be structured to take advantage of favorable redemption rules upon death.
  • Forces shareholders to deal with liquidity issues and addresses how a possible buyout would be funded.
  • Helps prevent loss of tax benefits, especially for S corporations in which transferred stock could lead to termination of the S election. It can disallow the transfer of shares without the consent of the owners.

What you should do

Here are several ideas to consider when putting together your own buy-sell agreement.

  • Develop it early. Create the framework of a buy-sell agreement well before you need it. Even if you need to amend the buy-sell agreement in the future, you’ll at least have the framework of the agreement ready to go.
  • Agree to the valuation method. You should agree to how the price of the business is determined. Who will conduct the valuation? Which valuation method will be used? You could also consider allowing an independent valuation expert to determine the most appropriate method to value the business.
  • Involve your entire team of trusted advisors. There are many moving parts to a buy-sell agreement, so be sure to involve your entire team of trusted advisors, including your attorney, tax accountant, and a third-party valuation professional, while crafting the agreement.

Something as valuable as the ownership and management of a small business should not be left to chance. The agreement needs to satisfy all parties involved, including the IRS requirements for tax purposes. Please contact us for assistance in drafting a buy-sell agreement or in updating your current buy-sell agreement.

Learn more

Insero & Co. is a public accounting firm with decades of experience working with businesses and nonprofits of all sizes. Our experienced experts are available to help you evaluate best-in-class software and transition to solutions that give you the ability to scale efficiently.

As always, we hope you find our tips and news for businesses valuable, and look forward to receiving your feedback. Companies focused on growth have sought the help of Insero & Co. for more than 40 years. During that time they have consistently experienced the peace of mind that comes from knowing their CPA firm takes the concept of integrity seriously. Should you have any questions about a buy-sell agreement, please contact us directly.