When a shareholder active in the management of a private corporation dies, management is immediately disrupted which may adversely affect the business. Financial loss may occur and reorganization of management is inevitable.
For surviving shareholders, there are only four alternatives:
- Reorganize to included heirs in business
May be inexperienced, incompatible and unable to contribute to management.
- Reorganize to include an outsider.
May lack the skills and experience or hold conflicting management ideas
- Sell out to heirs.
Agreement on a price fair to all may be difficult to reach
- Buy out the heirs
Cash to purchase their shares may not be readily available
There is a Better Solution!
- That guarantees the heirs the full value of their shares in cash.
- That guarantees the surviving shareholders full ownership of the business.
The plan is simple:
Shareholders agree by contract (a “Buy-Sell Agreement”) that:
- The shares of any deceased or disabled associate will be purchased by and sold to surviving shareholders in the event of death or disability
- The price, or method for determining it, will be clearly set forth
- The method of financing the purchase will be clearly defined.
Shareholders create a special fund through business life and disability insurance to finance the Agreement that will:
- Provide sufficient cash when needed – immediately and economically
- Free operating capital for normal business requirements
- Eliminate additional borrowing or invading of personal resources