Full question:
Jim and Steve own and operate a roofing business. They started the company from scratch and watched it grow, but they are concerned about the future of the business if something happens to one of them. It is presumed that the remaining partner will buy the former partner's share in the business, but there could still be problems if some sort of a signed document doesn't guarantee that their wishes will be carried out. What if the widow of the deceased partner decides that she doesn't want to sell the part of the business she inherited? What if the widow decides to sell the interest to someone else? What if the remaining partner doesn't have the funds at hand to buy his former partner's interests?
- Category: Contracts
- Subcategory: BuySell Agreements
- Date:
- State: Alabama
Answer:
One way to be assured that the business will carry on unabated is for Jim and Steve to enter into a buy-sell agreement. The agreement can state that one owner will have the right to purchase the other owner's interests in the business if one of them should die. The agreement may also state what their intentions are if one of the owners should become disabled, retires, divorces, or faces personal bankruptcy. An important part of that agreement is to assure that the funds are available for the remaining owner to make the purchase. Therefore, many buy-sell agreements require the purchase of life insurance. The insurance company sells the business a "first to die" policy that pays a death benefit on the death of the first owner. This ensures that the remaining partner will have the funds available for the buyout.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.
