Q. Robert, I started a small business last year and have a partner.  We both have 50% ownership.  Someone suggested that we get a buy/sell agreement.  I have a good idea what that means, however I do not really understand the specifics.  Do you handle this type of agreement? – Gerald in High Point

A.  Gerald, we have done several of these over the years.  I could actually write several pages on this, but due to the space of this article I will try to talk about what is relevant to your situation.  You did not specify whether or not the business is a corporation or not.  In some situations, corporations might be subjected to the alternative minimum tax (AMT) on the payout of benefits.

Basically, a buy/sell agreement is used to compensate an owner’s family in the event of death or disability of a partner.  Also, it can help in the continuity of ownership without having the departing owner’s heirs suddenly thrust into the business.  Typically, life and disability insurance are the vehicles most commonly used for a small business like yours.  The agreement can be drafted in different ways, usually the policy is owned by the business and the premiums are paid by the business.  The proceeds can be left to the business itself, the remaining owners, the departing owner’s family, or a combination of all three.  A proper agreement must specify exactly how the money will be used to buy out the interest of the departing owner.

Using life insurance is a great way for any business to fund a buyout.  It is a relativity inexpensive option for the business to come up with funds on short notice, while keeping the liquidity of any funds the business has accrued intact.

While I have tried to summarize this for you, I recommend that you have an attorney to draw up the agreement, and consult with a CPA about any tax issues that may come into play.  We will then get you the proper product for your needs.

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Robert Cooper, CRPC, RFC 

Investment Advisor Representative

Providing Financial Planning Services in the Triad for Over 20 Years

336-993-2012  •  www.coopercares.com  

935-E Mountain St., Kernersville, NC 27284

Investment Advisory Services Offered Through Global Financial  Private Capital, LLC, an SEC Registered Investment Advisor.

If you would like a complimentary consultation with Robert, call the office at 993-2012.

Robert Cooper and Global Financial Private Capital, LLC do not provide tax or legal advice.  Individuals should seek advice from their own tax or legal counsel for their particular situation.

Any comments regarding safe and secure investments and guaranteed streams refer only to fixed insurance products. They do not refer, in any way to securities or investment advisory products. Insurance and Annuity product guarantees are subject to the claims paying ability of the issuing company, and are not offered by Global Financial Private Capital.