Waypoint Insurance - Risk & Business Magazine VIIC Fall 2015 | Page 25

Keeping Control

Buy-Sell Agreements, Insurance, and You
BY: KRISTIE JOHNSTON, VIIC

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uy-sell agreements, at their heart, are
a way for business owners to keep
control of their business in situations
where a co-owner either is unable to
remain with the business or opts to leave
the business voluntarily.
If you were to think of a business as a
“marriage” between shareholders or
partners, this might be considered a
will (or a prenuptial agreement). It is
an agreement on how a given “what-if”
scenario will be handled should one arise.
In the case of buy-sell agreements, that
situation is the disability or death of one
of the owners. These, along with buy-sell
insurance, are meant to not only govern
the way that a business will remain after
one of the owners departs, but also,
with the help of the insurance itself, to
facilitate the buyout of the shares of that
departing owner.

There are a number of legally binding
clauses which are included in buy-sell
agreements which help with guiding
business decisions. The first of these is
a clause indicating who will be able to
purchase the departing partner’s share
of the business. This clause will usually
include information about whether the
purchase will be restricted to the other
partners or if outsiders will also be
allowed to make the purchase.
A second clause will include information
about what events might trigger the
buyout of the departing shareholder.
The most common events that are going
to be included in this clause are death,
retirement, disability, or a shareholder
simply deciding to leave the company.
Others can be included, but these are the
ones that are encountered most often. At
a minimum, death and disability need to
be included in the buy-sell agreement.

A third clause will contain the price
that needs to be paid for the departing
shareholder’s interest in the company.
This is primarily included in order
to ensure that a fair price is provided
to whichever member is leaving the
company. Again, it may seem like a given
to most people but when it comes down
to ironing out the details in a trying
time, it is much better to have something
already in writing to govern the situation
rather than relying on winks and
handshakes.
If you own a business, you know how
difficult it can be to look at the larger
view of the business from the top down.
Sometimes it becomes easy to get lost in
the day to day minutiae of running the
business and you “can’t see the forest for
the trees”. Regardless of the reason, there
should always be a buy-sell agreement in
place which can help to determine what

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RISK & BUSINESS MAGAZINETM
FALL 2015

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