Problem: The owners of a small or closely held business may assume that they'll simply buy each other out if one of them dies, becomes disabled or retires. The problem is that without a formal plan for the orderly transfer of ownership, the loss of a principal in a sole proprietorship, partnership, C corporation, S corporation or LLC can create devastating problems for the remaining owners and the heirs of the deceased owner.
Solution: A properly drafted, formal buy-sell agreement, funded with life and disability insurance, can ensure that the owners' interests in the business will be fairly valued and paid for at death, disability or retirement. Two basic types of buy-sell agreements are:
Both types of buy-sell agreements create a market for the owners' business interests and assure the orderly change of ownership. Premiums are not tax-deductible. Proceeds are received income tax-free under current tax law (except if the alternative minimum tax applies for some C corporations).
Reference: Buy-Sell Planning Adviser Guide (Form 2412), Buy-Sell Funding Buy-Sell Funding Agreement Brochure (Form 2407), Buy-Sell Client Guide (Form 2301), Buy-Sell Comparison Table (Form 2803).
Ohio National is not affiliated with, nor does it endorse or sponsor, any particular prospecting, marketing or selling system.