Business Planning - Buy Sell Agreement
A buy-sell agreement ensures stability in business transition and prevents heirs from having to run or sell the business after an owner dies. With a buyer in place, a life insurance policy ensures that funds will be available when needed.
Tracking #532789 | Exp. 02/2025
50 words or less
A buy-sell agreement is a legally binding contract—whether simple or complex—that dictates the terms of a future sale of a business interest, ensuring continuity of ownership and management. It specifies the triggering circumstances (retirement, death, disability), the buyer(s), and how the business will be valued.
How It Works:
There are three main types of buy-sell agreements:
Cross-purchase agreement
Each owner buys part of the interest. Each owner buys insurance on every other owner to fund the purchase.
Entity-purchase agreement
The business itself buys the interest. The business buys insurance on each owner to fund the purchase.
One-way agreement
An individual (usually a key employee) agrees to buy a sole-owner business. The buyer typically purchases life insurance on the owner to fund the purchase.
Why Is It Useful?
A buy-sell agreement ensures an orderly transition and alleviates conflicts over the value of a business. Heirs get needed cash, and surviving owners are assured that the heirs or a stranger cannot insert themselves into the business.
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This material was prepared by PGI Partners, Inc. on behalf of LPL Financial, LLC.
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