Financial
You have invested so much to make your business a success. Have you considered what steps you need to take if you want to retire or need to sell the business? Planning for business continuation can help you harvest the value of your business when you leave the company.
How a buy-sell agreement works
A buy-sell agreement is a legal agreement that provides for the sale of business ownership interest upon the occurrence of a triggering event — such as the owner’s death, disability, or retirement.
You select who buys your business (possibly any co-owners), determine a fair purchase price and the way you, or your heirs, will be paid for your share.
There are different types of buy-sell agreements, but most use life insurance policies in some way as a funding source. Life insurance can be used to help pay off your business interest to you, or heirs, using the death benefit and potential cash value (from permanent life insurance).1
Buy-sell agreements can help:
- Secure an orderly transfer: You and those purchasing pre-determine specific outcomes to create stability for your business and peace of mind for you.
- Access cash values for purchase: Using permanent life insurance can build accessible cash value that can help with the purchase price of the business.
- Lock in fair market value: Buyers and sellers agree to a fair price now, rather than waiting until a future setback could potentially reduce the asking price.
You should work with an attorney to implement a buy-sell agreement. Your attorney and tax professional can help make sure the arrangement aligns with your long-term planning goals.
1 If tax-free loans are taken and the policy lapses, a taxable event may occur. Withdrawals (partial surrenders) and loans from life insurance policies classified as modified endowment contracts may be subject to tax at the time the withdrawal or loan is taken and, if taken prior to age 59½, a 10% federal tax penalty may apply. Withdrawals and loans reduce the death benefit and cash surrender value. Always consult with a tax advisor regarding your particular situation.
This material provides general information that is designed to be educational in nature and is not intended as specific tax or legal advice to any particular individual nor the law of any particular state. Please seek the advice of a qualified tax or legal professional for your specific situation.
Products are issued by AuguStar Life Insurance Company and AuguStar Life Assurance Corporation. Product, product features and rider availability vary by state. Issuer not licensed to conduct business in NY.
