When should you trigger a buy-sell agreement?

If you own a business and retirement is on the horizon, you should work out a business succession plan if you want your company to remain in the hands of someone you trust, like a child, relative or a friend. This is why Delaware business owners include buy-sell agreements to create a smooth transition. However, any business owner should include the appropriate triggers to properly implement a buy-sell option.

According to Think Advisor, the most common triggers for a buy-sell agreement are when a business owner passes away or is retired. If your death is sudden and unexpected, you want to have a provision in place to trigger buy-sell options. Similarly, you may become disabled and no longer capable of exercising business decisions, so disability should be included as another trigger for you or any other owner.

In addition, there are other triggers that should be considered. Sometimes a person who owns a share in a business becomes financially insolvent and declares bankruptcy. You may want to include a buy-sell trigger so that the insolvent partner’s bankruptcy does not claim part or all of your business. Some business owners also include buy-sell triggers to buy out owners who are convicted of a crime.

There are other life events to be considered. A business owner might get divorced. A buy-sell option can allow the other partners to buy out the divorced partner and prevent the divorce court from dividing some of the business assets. Sometimes a business owner may lose a professional license and not be able to operate in a certain industry any longer, necessitating a buy out to remove the partner from the company.

A buy-sell agreement can address many different scenarios. If used properly, a buy-sell option can preserve a business and its assets and place it in the proper hands after an owner retires. Since business owners will have different succession wishes for their respective companies, do not read this information as legal advice. It is only intended as educational content.



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