Written By: Brandy Miller | August 15, 2017 | No Comments
Buy-sell agreements require one party to purchase a specific ownership interest in the company and require the other party to sell an ownership interest. Buy-sell agreements protect businesses from divorce, death, disability and other possible issues.
If you own a company, you may want to establish a buy-sell agreement to protect your business and your future. However, there are different types of buy sell agreements, and it’s important to understand which one may be right for you:
- Cross Purchase Agreements.
With these agreements, each stockholder in a corporation is required to own life insurance for the lives of other stockholders. Each owner would be the beneficiary and would pay the premiums. If one of the owners passes away, the proceeds from the insurance would be used to buy the ownership interests from the estate of the owner who has passed away.
If there are more than two owners, this can quickly become complicated. Owners can create a trust deed agreement, where a trust is used to own one policy for each stockholder and to represent the other owners to ensure proceeds from insurance money are distributed equally in the event of a death.
- Entity Purchase Agreements.
With these agreements, if a specific event occurs, the business buys an owner’s entire interest at a decided price. In the case of a partnership, it will be in the form of liquidation of interest. If your business is a corporation, this agreement will result in a stock redemption agreement.
Even within these two types of buy-sell agreements, there are many differences possible, depending on whether your business is structured as a partnership, corporation or other entity. Before creating a buy-sell agreement, it’s important to speak to a business agreement lawyer near Reading, PA or your community.
Buy-sell agreements can affect your tax obligations, and certain types of agreements may be more appropriate for your business structure. If you’d like to speak to a business lawyer near Reading, PA, contact Miller Law Group, PLLC for a consultation. Our attorneys can review your business plan and exit strategy to help you formulate the right buy sell agreements and other protections for your company’s future.