What are Buy-Sell Agreements?
Buy-sell agreements are legal contracts that allow for the transfer of a business to a previously agreed party or person. In a sense this is similar to a business sale contract, but rather than entering the contract in known circumstances, this agreement contemplates ‘trigger’ events which, when they occur, ensure continuity in known circumstances. The agreement means that there will be minimum disruption, confusion, or dispute if you relinquish control, possibly in the event of death or disability, but even upon retirement: a situation that is comforting to a number of stakeholders.
The Buy-Sell agreement is one of the agreements that constitute a business succession plan. As with most business-based planning, it is preferable that the succession plan be documented. Regrettably many businesses fail to do so. A minimum position should be the documentation of the Buy-Sell Agreement (and its funding through insurance policies that are kept up-to-date from that time forward).
When are Buy-Sell Agreements used?
Even if you’re looking to stay on in your business for longer; or have no plan for retirement, a buy-sell agreement ensures the business its continuity in circumstances prescribed in the agreement. The circumstances might not be planned, but can be contemplated – and can arise without notice: accidents, serious illness, even death are amongst the more obvious situations of concern.
Importantly, your buy-sell arrangements should ensure that your family is provided for in any consequent transaction, minimising the risk of their being left in unfortunate financial circumstances. (In this respect business succession planning also ties in with personal estate planning.)
Funding the provisions Buy-Sell Agreements.
It is usual to have the provisions of a Buy/sell agreement supported by the provision of various insurance policies that will be referenced in the agreement. (Refer our article Buy-Sell Agreement cover for more on this topic.)
Want help organising a Buy-Sell Agreement (and Cover)?
For guidance or assistance in respect of your Business Succession Plan, or of your Buy/sell agreement phone us on 07-3421 3456; or complete the website Contact Us form to make an appointment with a Continuum Financial Planners Pty Ltd experienced adviser. ‘We listen, we understand; and we have solutions’ – and if the matter needs to be referred to another professional for completion, our network referrals will be available at your convenience.
We thank McKays Solicitors for allowing us to base our article on this topic on material found in their website.
(This post was originally published in January 2010: it has been updated in January 2014.)