How Buy-Sell Agreements Can Save a Business Partnership if One Partner Dies

Business partners share many burdens and the task of making difficult decisions. They are assets to a company, so it is important to protect the business in the event a business partner dies. Both partners should plan ahead for this possibility. A death will affect multiple aspects of the business, and its effects span wider than most people assume. Many people prepare for the ensuing conflicts between themselves and the deceased partner’s family or survivors. However, it is also important to prepare for issues such as suppliers recalling contracts, customer numbers dwindling, creditors demanding payments and the possibility of some employees wanting to leave the company.

Exploring the available choices in the event a business partner dies is beneficial. One of the first steps a person may take is to liquidate the business. After this, the assets will be distributed. However, this will eliminate the main source of income for the surviving partner in most situations. Surviving partners should also be aware that assets usually sell for only a small percentage of what they are worth. Another option is to offer partnership to the deceased’s heirs. There could be problems with this choice, because the heirs may not share the same workable relationship with the surviving partner that the deceased partner did. They may also not be familiar with that type of business and require more training. Replacing a deceased partner’s skill set, chemistry, knowledge and perspective is difficult and sometimes nearly impossible.

Some surviving partners can sell their own shares to the deceased partner’s heirs. This option dos not usually work, because the heirs typically disagree with the purchase price. Difficulties often continue throughout the rest of the processes. A final option is to buy out the heirs and make the business a sole proprietorship. Again, this option comes with disagreements over terms and the purchase price. In addition to this, the surviving partner must produce the money to buy the remaining half of the business.

These exhausted and undesirable options may seem to leave no choices. However, the best option is to construct a buy-sell agreement. This is a legally binding contract that outlines what will occur if a business partner becomes disabled or dies. All decisions can be made in advance, so both partners will be able to make future decisions for the business if one dies. Contracts can be very complex or very simple, but they should specify purchase prices or include a formula to calculate the value of the company if a buyout must be made.

A business partner’s death will be hard for not only his or her surviving family members but also a surviving business partner. Negotiating the future of the business during a difficult time can be bypassed by having a solid buy-sell agreement in place. Adequate and fair provisions can be made with a buy-sell agreement for the heirs of the deceased partner. It is also much easier to place an accurate value on the deceased partner’s business shares, and the agreement will take some of the strain off of the business. It also keeps bad feelings between the parties from forming. To learn more about these options and to protect the future of a business, contact ACBI.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s