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In today’s increasingly complex business environment, employing human capital can be overwhelming to keep up with for companies of every size. BCG works with companies with just a few employees to organizations with thousands of employees.
Buy-Sell Agreements For Business Succession and Continuation
While there are a number of strategies for ensuring an orderly, tax-efficient transfer of ownership of your business at the time of your retirement, disability or death, a comprehensive Buy-Sell Agreement should be at the top of your list.
You’ve worked hard to build your business and it very likely represents a large portion of your net worth. If you have not already prepared a Buy-Sell Agreement to protect all that you’ve worked for, you should not wait another minute. Here are a few questions to ask yourself that will reinforce why you should take action today:
Cross-Purchase Buy-Sell Agreements
Without a formal, written Buy-Sell Agreement, if an owner were to die, unhappy consequences may result:
A Buy-Sell Agreement gives business owners exact information about who will purchase a deceased owner’s interest, what the price will be, when the sale will take place and where the funds will come from. The purchase price is either specified as a certain, fixed amount or the agreement includes a formula to determine the price.
A cross-purchase buyout is funded when each owner purchases a life insurance policy to cover the life of every other owner. The total amount of insurance estimates the purchase price for the insured’s share of the business.
These are just a few of the scenarios that could take place resulting in financial hardship for or even force the liquidation of the business. Fortunately, there is a solution: A well-crafted Buy-Sell Agreement.
A Buy-Sell Agreement Is a Legal Contract
In the process of preparing the contract, the owner or owners of the business contemplate as many potential scenarios as possible that could negatively or positively impact the succession or continuation of their business including:
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