The numbers tell the story. There's a very good chance that a principal in a small or closely held corporation will suffer a long-term disability sometime before retirement. What's more, the disability can result in serious consequences.
- The disabled person will be unable to participate in the business, but his or her income needs will continue, and he or she is entitled to a share of the profits.
- The disabled person may not be productive, but will still have a legal voice in the business — and the remaining principals may or may not want to listen.
- The remaining principals may need to find a replacement. To attract the right person, they may be forced to bring someone into the business as an owner. This may be impossible if the disabled person retains his or her ownership interest.
By guaranteeing a market for the owners' business interests, a disability buy-sell agreement can solve these problems for the business while reducing the financial strain on the person who has been disabled.
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