Today is a very happy day for me. Why? Because I get a chance to feature a video that explains the benefits of using contracts! (Yes, I know, it takes very little to make me happy).This is all thanks to Mark J. Kohler who does an admirable job of showing us how to use a buy-sell agreement to protect a partnership.
As Kohler explains, the goal of this contract is to protect the intrinsic value of a business for each of its individual partners. The buy-sell agreement does this by setting the price and terms of a buyout by the remaining partner(s) should one of the partners decides to voluntarily or involuntarily leave the business. These events (which would be specified in the buy-sell agreement) can include situations where the partner leaving the business: retires, gets a divorce, passes away or maybe just wants to sell his shares to someone else.
Now, I'll let Kohler explain the mechanics of the buy-sell agreement in this 2 minute video on the topic.
But Beware:
It is very important for you to have a completed and executed buy-sell agreement before you leave your partner as beneficiary to your life-insurance policy. In an example, Steve Parrish shows how having the life insurance without a signed buy-sell agreement meant that the surviving partner in a partnership was legally allowed to hold on to $2 million of his deceased partner's life insurance proceeds (instead of using the funds to buy back the business shares from the deceased partner's family). You should note that the attorneys for the business had prepared drafts of a buy-sell agreement but because none was signed, they were not binding in a court of law.
So, given the benefits of a properly executed buy-sell agreement, it might be time to start looking into how you can use it to protect your stake in your partnership right?
