Do you have protection in place if your fellow business owners were to become seriously injured or were to pass away?
If you answered no to the above, here is a friendly reminder for you to reach out to a Financial Advisor from Endorphin Wealth. Our experienced Advisors can discuss Buy/Sell arrangements with you.
What is a Buy / Sell Arrangement?
You may hear people calling Buy/Sell arrangements a ‘business will’. A Buy / Sell arrangement is a contract that allows for the remaining owners to continue running the business if one owner was to become seriously ill or pass away.
This happens through a lump sum payment to enable the remaining owners to acquire the departing owner’s equity. Ultimately, it ensures that the business can continue to operate as per normal.
Benefits of Buy/Sell Arrangements:
A well thought out Arrangement will help to reduce a businesses risks. The risks that can be removed include:
- The need for remaining owners to sell the business completely
- Remaining owners needing to refinance, and take out additional debt to pay out the departing owner
- Legal issues created by the departing owner/family/estate causing assets to be frozen
- A departing owner’s family becoming an active business partner (against the wishes of the remaining owners)
- The departing owner or family selling their share of the business to a third party
What Kind of Cover is There?
- Death of a partner (Life insurance)
- Total and permanent disability (TPD insurance)
- Trauma such as heart attack, stroke, cancer (Trauma insurance)
Case Study:
- James and Peter are co – owners of a fast growing IT firm in Melbourne.
- Both James and Peter are well aware that they have young families at home that they need to protect, as their business share is their family’s main assets and source of income.
- They engage with their financial advisor to discuss the potential risks if one of them were to pass away.
- Both take out life policies on their own lives, to the value of their business share.
- They then have a transfer agreement drawn up.
- James has a serious car accident in which he passes away.
- Because they had discussed their Buy / Sell Agreement, his estate receives the life insurance proceeds. As per the Agreement his share of the business is automatically transferred to Peter.
- As a result of owning the company outright, Peter can continue operating the business without the financial burden of paying out James’ estate.
If your business doesn’t have any form of Buy/Sell Arrangement in place, it is very important to reach out to our experienced Advisors for an obligation free discussion. Please contact on 03 9190 8964 or at [email protected]to get more information and insight into how you can get the protection you need.
