Businesses with only a few owners (or even just one) can often struggle to stay open when an owner becomes disabled or even dies. One way to prevent this is to set up a buy-sell agreement so the interest of the disabled or deceased owner can be purchased with little disruption. One type of buy-sell agreement is an entity redemption where the company itself agrees to buy, and each owner agrees to sell (or have his estate sell) the owner’s interest in the company. To guarantee the company will have the cash available to complete the agreement, the company can purchase life or disability insurance on the business owners.
Having the company agree to purchase the business interest (as opposed to having each owner agree to purchase the other owners’ interests) can simplify the number of, and relationship between, the insurance policies needed. It can also ensure the premium costs for the various insurance policies on all of the owners are shared equally, so that no one owner has to pay a disproportionate amount for the same coverage.
If you have any questions about buy-sell agreements, or other ways you can help protect your small business, contact me at firstname.lastname@example.org or 413-570-3170.