Is your firm protected if a Partner tragically passes or becomes disabled?

  • How would you feel about your partner’s spouse becoming your new business partner?
  • What if you had to continuing paying your partners estate well after they are out of the operations of the business, while hiring someone to replace them?
  • Have to negotiate a buying price of your partners shares after he is deceased?

If any of these scenarios cause alarm or anxiety in your mind, having a properly structured Buy Sell agreement is critical to the planning and continuation of your business.

Example

You and your Partner (John & Jack) went in together and founded J & J Venture Capital Fund. You both own 50% of the management company and the underlying interests in the fund. You and your partner fundraise and gather Limited Partner interest of $100,000,000. Your Management fee is 2%($2,000,000 Per year) per year and have a 20% carry in the fund.

Jack suddenly dies in year 2 into the fund founding. His 50% ownership goes to his estate/ spouse. Now your business is owned by a partner you may not have a relationship with, nor a partner that may want anything to do with your business. Since they own 50%, they now have just as much of a say as you do in the choices involving your business, as well as a stake in the Management Fee & Carried Interest of your hard work.

Example #2 (Simple Business)

You and your Partner (John & Jack) went in together and founded Law Offices of J & J. You both own 50% of the company. Business is booming and you both are making a combines revenue of $800,000

Jack suddenly dies. His 50% ownership goes to his estate/ spouse. Now your business is owned by a partner you may not have a relationship with, nor a partner that may want anything to do with your business. Since they own 50%, they now have just as much of a say as you do in the choices involving your business & profits.

Having a Buy Sell Agreement that is properly funded with Life/ Disability Insurance alleviates these stresses by providing the following:

  • Guarantees a buyer for your deceased owners shares
  • Creates liquidity for the business owner’s estate
  • Sets a fair valuation for the business prior to the departure of an owner
  • Prevents members of the deceased owner’s family from becoming business partners

 

If you want to protect yourself from this event, please contact Sasha Specht, CIC at sspecht@costelloandsons.com or 415-257-2109 today.