Businesses, small and large, have a unique set of financial requirements. Two of the more common needs catered for include:
- Buy-and-Sell agreements - these are legal agreements between partners or shareholders which ensure that a business's management and ownership is not thrown into disarray upon the untimely death of one of the stakeholders.
- Keyman policies - this is a special life policy taken out by an employer on the life of a key individual in the organisation. It provides the business with bridging finance in the event of the employee's untimely demise.
See here for a full explanantion of how Keyman Policies and Buy and Sell Agreements effect Estate Duty
Besides considerable tax and estate duty advantages, having these agreements in place increases the businesses credit ratings with lenders, customers and staff alike. Besides the above two agreements, other specialised needs catered for include: restraint of trade agreements, deferred and preferred compensation,contingent liabilities etc.
Buy and Sell Agreement - the Wikipedia Definition:
A buy-sell agreement may be thought of as a sort of "premarital agreement" between business partners/shareholders. It is sometimes called a 'business will'. An insured buy-sell agreement (agreement funded with life insurance on the participating owner's lives) is often recommended by business succession specialists and financial planners to ensure the buy-sell arrangement is well-funded and also to guarantee there will be money when the buy-sell event is triggered.
In the sale of a business, a buy-sell clause (or Shotgun clause) in a shareholder agreement preserves continuity of ownership in the business and ensures that everyone is fairly treated, the buyer as well as the seller. It is a binding contract between business partners or shareholders about the future ownership of the business. A buy-sell agreement is made up of several legally binding clauses in a business partnership or operating agreement (or it can be a separate agreement that stands on its own) that can control the following business decisions:
* Who can buy a departing partner's or shareholder's share of the business (this may include outsiders or be limited to other partners/shareholders);
* What events will trigger a buyout, and;
(the most common events that trigger a buyout are: death, disability, retirement, or an owner leaving the company)
* What price will be paid for a partner's or shareholder's interest in the partnership and so on.
Buy-sell agreement can be in the form of a cross-purchase plan or a repurchase (entity or stock-redemption) plan. For greater neutrality and effectiveness of the buy-sell arrangement, the service of a corporate trustee is recommended.