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4 situations where a buy/ sell agreement is useful

We understand that running a business or ag operation takes a lot of time and energy – but, on the other hand, it can also be very rewarding. As a business owner, you may be busy and do not expect for certain situations to occur all of a sudden. Since you have put so much into your business, it’s important to plan for the future of your key employees, as well as for your business or agricultural operation. Here are some things you can do now to prepare.

Creating a buy/sell agreement is one way to protect your business from the unexpected.

Basically, this is an agreement between a minimum of two parties in a business or ag operation – such as business partners, and an owner and their heirs. The agreement determines the pricing and value of the shares, the selling amounts, and what would happen to the business in different situations. Basically, it makes sure everyone involved gets a fair deal.

Here are 4 situations where a buy/ sell agreement could be useful: 

1. A change in the partner relationship

Like personal relationships, business relationships change all the time. You or your partner could choose to leave the business. Or you could bring a new partner on board. A buy/sell agreement sets the arrangements up in advance and makes the transition easier on everyone involved.

2. Retirement or death

At some point, you or your partner may want to retire, or one of you could pass away suddenly. If you have an heir, you might want to pass your business on to them.

A buy/sell agreement could help you plan ahead of time – determining what will happen to the operation, and whether the heir may become a new partner. Or the heir may not be specialized in your type of business and prefer to sell their portion of the business.

A buy-sell agreement can determine how much their share of the business could be sold for ahead of time – reducing possible headaches and stress for all parties.

3. Personal bankruptcy or divorce

Situations in your personal life can affect your business. You or your partner could get divorced or declare personal bankruptcy. A buy/sell agreement can help protect everyone from the legal complications involved. It can also determine the business arrangements should this occur.

4. Disability or Critical Illness

If you or your partner becomes ill or gets injured, you may not be able to work or contribute to the business. Putting a plan in place ahead of time would help one person buy the other one out if needed.

Another option to protect your business – or the key people within your business – is key person insurance. This insurance will cover your financial costs if an important or “key” person becomes disabled or critically ill, or passes away.

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