People suffer traumatic accidents, become disabled and sometimes tragically die - all facts of life.

The problems that can occur if they are not planned for can destroy the business, and probably the livelihood of the proprietors and their families. Specific problems that may occur include:

• The estate/family of the departed proprietor may demand an involvement in the business with existing shareholders or partners.
• The estate/family may make unrealistic demands on the value of their equity or may want the business wound up and the proceeds distributed.
• Creditors may call in outstanding amounts, particularly where the departed proprietor had a significant impact on the business perceived credit worthiness
• Lending institutions: banks etc, may limit the continuing availability of finance if they perceive that the business' financial capacity has diminished.
• The departed proprietors’ estate/family may be placed in the position of accepting less than what the business is really worth.
• Clients may take their business elsewhere if they perceive a reduction in the ability of the business to service their needs.

Whilst a properly structured and funded buy/sell arrangement can't stop any of the above occurring it can ensure that there is adequate compensation in the event of their happening.

The prime purpose for a buy/sell agreement is to ensure the efficient withdrawal of a partner from a business (or from jointly held property) without the need for expense, legal advice or proceedings. Put simply, it makes good business sense.

Following the death or disablement of a partner two needs immediately arise:

• The continuing partner's need to take quick control of that parties interest at a reasonable price to protect the ongoing business; and
  
• The dependants of the deceased or disabled need relief from the concerns of the business and the ability to receive full value for the business interests.

A buy/sell agreement together with the correct insurance policy will meet those needs. All to often we devote our efforts to wealth creation, wealth preservation and wealth distribution (tax effectively) but ignore wealth succession and yet often the cost of control of wealth succession is negligible.

A buy/sell agreement will assist in protecting your control and the value of your business if your partner dies and enables your estate and dependants to obtain full hassle free value for your share in your business if you die.

Death Only?

Death is the most common trigger for a buy/sell agreement but there are others. Total and permanent disablement is also very common, especially because this and death can be covered by life insurance which in comparison to the value and protection it gives, is relatively cheap.
There are many other events apart from these two which can trigger the operation of a buy/sell agreement.
It is usual however, that these other events are very personal to the parties and often require a tailored
Buy/Sell Agreement. A sample of these "other events" include bankruptcy, trauma, conviction of a crime, retirement etc.