Insurance Advisor and Financial Planner based in Calgary.

Partnership Buy/Sell Funding

Have you given thought to what might happen if your business partner were to pass away suddenly? Not only does the sudden disposition of that partners business interest pose a potential problem for you but also his/her heirs. Who will purchase the shares of the deceased? Where will the money come from? These are all problems that can be address through a proper buy-sell agreement.

A buy-sell agreement provides that:

  • The business entity, a key employee, or the surviving partners will purchase the deceased owner's shares at an agreed-upon price.
  • The deceased owner's estate is obligated to sell the shares at that price.

An example for the need of a buy-sell agreement.

Johnson Manufacturing is a partnership with three owners; George (Frank), Howard (Brad), and Stanley (John). If Frank suddenly dies, his shares in the company would be passed on to his son Chris. Chris does not have experience in running the business and both Brad and John dislike the idea of sharing the company with him. It is safe to assume that if one of the other two partners suddenly passed away, Frank would feel the same way about their heirs. Setting up a buy-sell agreement ensures the remaining partners attain full control of the company as opposed to a child or spouse that may not want to be or shouldn’t be involved in the business. It also assures the deceased that his heirs will receive a fair price for his shares.

How to fund it?

Writing a cheque to purchase an interest in a business isn’t necessary that easy. Typically it doesn’t make sense to suddenly liquidate a large part of the business simply to facilitate buying out the heirs of the deceased as this can be financially detrimental to the company. In a case like this a death benefit from an insurance policy makes the most sense and allows for a cost-efficient strategy to transition ownership.

Please contact us today for your no-obligation consultation. We look forward to helping you and your family.

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