For small businesses with two or more Owners, a host of issues arise when one or more of the Owners becomes incapacitated or dies prematurely.
Without an agreement in place, the surviving spouse and/or children of the deceased Owner have the right to immediately cash out his or her share. If your company can’t part with one-half or one-third of its value – as few can – then the surviving spouse and/or children become interested parties in your business.
In effect, you would be going into business with the family of your deceased partner.
Issues to Consider
A properly drafted Buy-Sell Agreement can help your business navigate through thorny issues such as:
- What happens to our business if one of its Owners dies or becomes Incapacitated?
- How can we prevent outsiders or heirs from obtaining an ownership interest?
- How can we create a Succession Plan if one or more Owners is unable to lead?
- How can we create a market for the Shares of a Retiring, Incapacitated or Deceased Owner?
- How can the tax liability of a deceased Owner be paid without ruining the company?
- (If an "S" Corporation) How can we prevent the loss of Subchapter S status, if shares are transferred to unqualified shareholder?
Get it in Writing
A Buy-Sell Agreement is similar to a Will or Trust in one key area – if you do not put your wishes in writing, the State of California will step in and apply their own rules.
And we can almost guarantee that the California Corporations Code will be far more unfriendly to your business than a plan that you would design yourself.
