Dreaming about opening up your own business is something many of us can relate to. For most of us, it is the ultimate long-term goal. All the hard work and effort that goes into finally making this a reality is something that shouldn’t be taken for granted.
However, just as much hard work and effort should go into protecting your business’s legacy long after you are gone. This is for the benefit of not only your partners but your loved ones too. With the right Buy and Sell agreement, you can ensure your dream lives on long after you’re gone. Keep reading to find out more.
Do you ever wonder what will happen to your business if you’re unable to run it? No one wants to think that their life’s work could crumble in the event that they become disabled or even die. This is where a Buy and Sell Agreement comes into play.
What Is a Buy and Sell Agreement?
A Buy and Sell Agreement is a contract used by three or more shareholders in a business. It helps protect each partner’s shares in the event of one shareholder’s death The agreement provides for the remaining shareholders to buy the deceased party’s shares.
How Does a Buy and Sell Agreement Work?
This type of agreement is there to ensure that all surviving co-owners are equipped with enough funds to purchase the interest of the deceased co-owner.
Through the terms of the agreement, each co-owner takes out a life cover on the other co-owners. In the event of a death, the life cover pays out and funds the purchase of his/her interest by the surviving co-owners.
A Buy and Sell Agreement is essential in ensuring that the business stays in the hands of those who can take care of it best. It also provides an added source of income for your loved ones during a dark time.
Is It Right for You? Who Needs a Buy and Sell Agreement
If you are a shareholder in a private company it’s time that you have a frank discussion about the future of your business. More importantly, shareholders should talk about what will happen to their shares if something happens to one of them.
Regardless of the nature of the business a Buy and Sell Agreement could protect its interests. It is part of a solid financial plan that ensures your business continues to run long after you do.
The Future of Your Business: Why Do You Need a Buy and Sell Agreement?
When the partner of a business dies they create a gap that might not be easy to replace. This could be in terms of skills or even resources.
This gap in the business can create a whole host of unforeseen issues. The consequences of a partner’s death might even spill into the personal lives of the deceased loved ones.
Challenges Faced by Unprotected Partners
Grieving partners could be left without the money needed to purchase the shares from the deceased owner’s estate.
In a desperate attempt to keep the business the partners may be forced to borrow from a commercial bank to obtain the shares. Repayments of such a hefty loan could become unaffordable if cash flow in the business is not readily available.
If the deceased partner brought a unique set of skills to the business finding the money to replace those skills might be next to impossible. This could see the business suffer and even close in the long run.
Challenges Faced by Unprotected Loved Ones
The surviving spouse might suffer the loss of income if a deceased owner earned a regular salary from their business. If the spouse is unable to work in the same capacity as the deceased theymay not be able to claim the earnings.
This may very well mean that the executor of the estate will be forced to interfere in a business in they know very little about. If proper directions are not stipulated in a will the executor might opt to sell the owner’s interest to the highest business for the sake of the estate. This opens up the business to outside investors that might not have the best intentions.
Think Smart. Invest in a Buy and Sell Agreement Today
It is important to protect what is yours. We know how hard your business works for you. Take the time to ensure that it has longevity in the face of adversity.
Contact the Maysure Financial Services team and find out if a Buy and Sell Agreement is the best option for your business today.
Contact us here:
+27 11 839 2302
info@maysure.za.com
Maysure Financial Services is a registered financial services provider. FSP 15173