If you own, run or are a shareholder in a business you need to consider the following scenarios.
If your business partner were to pass away unexpectedly or be permanently disabled today, who would you be in business with tomorrow? Who do you rely on to bring income into your business or to make everything run smoothly? What would be the financial effect of having that person suddenly unavailable due to accident, illness or death? Does your business carry a large amount of debt? What position would you leave your business in and those who would inherit it if you were permanently disabled or you died?
Shareholder/Partnership Protection and an appropriately worded Buy/Sell Agreement can provide financial certainty and a predictable outcome in the event of an untimely death or serious disablement of a business partner or shareholder. In the event of the death, disability or major health trauma of one of several business owners who has been active in operating a business, the remaining owners will be obliged to accept one the following alternatives:
1) Buy out the deceased/disabled owner's interest. Problems could arise in raising the funds to make the purchase, and/or agreement, on a fair price.
2) Take the deceased owner's representatives into the business. Questions can arise as to whether the representatives will support or oppose the decisions of the remaining shareholders? Will they be qualified to assume their share of business responsibilities? What if they are minors represented by a guardian?
3) Take outsiders into the business to purchase the deceased owner's interest. Questions can arise around whether the outsiders will want to make changes.
4) Liquidate the business or sell to a third party. If the sale or liquidation is delayed there may not be sufficient cash to pay all debts. This may result in the forced sale of personal assets to meet personal guarantees.