It is a legal contract where the various owners of a business agree that if one of them dies, or leaves the business for any other reason, the others will purchase his/her interest in the business.

The parties to the contract may be partners, agreeing to purchase the interest of a partner who dies. They may be a father and son, where the son is to purchase the father's business on death. Most commonly, however, we see buy-sell agreements between two or more shareholders of a private corporation, who agree to buy each others shares in the event of death, disability or a critical illness.

A buy-sell agreement may seem complicated, but is explained in one fairly simple sentence: "If a shareholder dies, the surviving shareholders agree to purchase the shares of the deceased shareholder, and the executor of the deceased shareholder agrees to sell the deceased shares for the purchase price set out in the agreement". The effect of the contractual obligation on the surviving shareholders is to create a need for capital on the death of the shareholder.

Simply put, the agreement should deal with:

1. Who will buy the shares;

2. What the terms of the sale will be;

3. When the sale will take place;

4. Where the money to buy the shares will come from; and

5. How much the purchase price of the shares will be?

To ensure the agreement is viable, proper funding must be in place. Without proper funding, agreements can fall apart.

Insurance is the most inexpensive way of financing.

The remaining owners benefit from a funded buy-sell agreement because the business is able to continue on with no unknown players to deal with. The ownership transition is handled smoothly, quickly and effectively.

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Should we have Buy-Sell Insurance

Shouldtheagreementbefundedwithlifeinsurance