Are you a start-up company who has just received venture capital financing, or are you an investor or venture capital firm who has invested in a start-up, tech company or another business with promising growth potential?
There are many factors that need to be considered, especially when such a large amount of funding is at stake. Protecting your business is most important, and if there are partners or more than one owner involved, a Buy Sell Agreement must be done.
What is this and how can I get one?
A Buy-Sell agreement is created by your attorney. Its purpose is to protect partners’ share of the business. If one of the business owners dies, what’s going to happen if you aren’t protected? I’ll tell you what- every family member they have (8th and 10th cousins, even) who have heard about this big business will be coming out of the woods. Probably not, but immediate family sure can and will. They aren’t just going to give the business back to the other partner, in exchange for nothing. Without a Buy-sell in place, they just may decide to take over their deceased loved one’s half by being the new, snazzy replacement. I can already tell you how that’s going to pan out…
If you have created a Buy-sell agreement, that’s great, but it’s only half the battle. Now it must be funded. What’s the easiest way to do this? With life insurance, of course!
A life insurance policy is taken out on all business partners and owners for their share of the business (don’t forget about proper business value). This benefit would pay to the deceased owner’s family in exchange for their share of the business.
Also, be sure to read our article “Start-ups: 5 Ways to Close your Business Doors.”