KEY TAKEAWAYS

• Buy-sell agreements are essential for business owners because valuing and transferring a closely held business interest is rarely handled well by boilerplate estate documents.
• Review and update the agreement regularly—ownership and business circumstances change, and older forms often miss critical details.
• A strong agreement clearly defines trigger events (not just death), such as disability, retirement, termination/resignation, divorce, or insolvency, to reduce disruption and conflict.

What Does Your Buy-Sell Agreement Look Like?

Is one document enough for a business owner? While estate planning has become simpler over the years due to tax law changes—and boilerplate documents may work for many—business owners often need a deeper approach. Valuing and liquidating an interest in a private, closely held business can raise complex issues that standard forms don’t always address. And just as relationships with key customers and suppliers evolve, buy-sell arrangements should be reviewed periodically to ensure they remain aligned with the business and its owners. Ideally, an agreement like this would be finalized right before it’s needed—but in reality, it rarely is.

Some owners try to solve the issue with life insurance. Insurance can play an important role, but it’s often paired with a form document provided by an agent, which may overlook critical details. Corporate counsel may draft an agreement, too, but representing multiple shareholders can be challenging—especially if ownership has changed since the original buy-sell was created. Have new shareholders joined, and if so, how has that been handled?

Considerations For Reviewing Your Buy-Sell Agreement

Although it can be difficult to plan for an ending, many problems can be avoided through a thoughtful conversation about the issues that matter most to you. Start at the beginning and work through the process at a pace that’s right for you. For example:

• When should the agreement be triggered? Of course, a death is an obvious triggering event, but what about other events?
• Does your buy-sell agreement address what happens if a co-owner quits or gets fired? Suppose the co-owner quits to pursue a competing business.
• Could a co-owner be fired for cause, and if so, should there be some sort of penalty applied to the liquidation of their interest?
• What if a co-owner becomes disabled or retires?
• How long could someone be ill before the illness is considered a disability triggering a liquidation event?
• Would your business be disrupted if one of the owners got divorced or became insolvent?

These and many other issues can certainly be addressed in a legal document, but the elements of the agreement are frequently best resolved by negotiation among the interested parties. Your Financial Advisor can help you think through and discuss the issues you may want to address in advance.