Buy-Sell Agreements for Multiple Business Owners

Does your Buy-Sell Agreement address how cross purchase agreement life insurance proceeds are to be considered in the valuation process?  Are they included in the valuation computation or excluded?  Many agreements are silent on this point.  As you can imagine, this can make a tremendous difference in how much your beneficiaries would receive from your share of the business.

Also, fixed-price buy-sell agreements are a sure fire method for making sure that one of the current owners gets short-changed.  The value of your business at a termination event (for instance, your death) is seldom worth the same as when you determined the fixed-price at the time the agreement was signed.  The surviving owner is betting that the value of the business rises and the selling owner is betting that the value declines after the fixed-price is determined.  One of these parties is going to lose.

These are just a couple of the things that can go wrong with a buy-sell agreement.  If you'd like to discuss these dangers and others, please give us a call.  Posted by Billy Upchurch, CPA