Buy-sell agreement funding

A plan for business owners

A buy-sell agreement is a contract that provides for the future sale of your business interest or for your purchase of a co-owner's interest in the business. Buy-sell agreements are also known as business continuation agreements and buyout agreements.

Under the terms of a buy-sell agreement — assuming you are the seller — you and the buyer enter into a contract for the transfer of your business interest by you or your estate at the occurrence of a specified triggering event. Typical triggering events include death, disability and retirement.

Ideally, buy-sell agreements are fully funded, and life insurance is frequently used for this purpose. After determining the value of the business, you, your advisors and the other parties to the agreement will determine the best way to fund the transaction and the triggers that are appropriate for your business situation.

For business owners who are concerned about how the death of a co-owner might affect their operation, a funded buy-sell agreement can help. This agreement provides a plan for you to purchase your partner’s share, eliminating any doubts about the continuation of the business. You can also avoid the dilemma of being in business with your partner’s survivors.

There are also costs and possible disadvantages involved in establishing a buy-sell agreement. One such disadvantage is that the agreement typically limits your freedom to sell the business to outside parties.

For more information, answers to questions about buy-sell agreements or questions about how a buy-sell agreement fits into an investment strategy please contact a CFS Financial Advisor at Denali today.

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer (Member FINRA/ SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The credit union has contracted with CFS to make non-deposit investment products and services available to credit union members.

For specific tax advice, please consult a tax professional.

Financial Advisors are registered to conduct securities business and licensed to conduct insurance business in limited states. Response to, or contact with, residents of other states will be made only upon compliance with applicable licensing and registration requirements. The information in this website is for U.S. residents only and does not constitute an offer to sell, or a solicitation of an offer to purchase brokerage services to persons outside of the United States.

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