Buy and Sell Agreements

What happens to an owner’s shares in a business if that owner dies, becomes disabled or terminally ill? The other owners can protect themselves with a buy and sell agreement.

It sometimes happens that one of the owners in a business dies or becomes disabled or terminally ill. The shareholders (or partnership) agreement between the owners is often silent on what happens to the deceased/disabled owner’s shares, and disputes often arise. Even worse, sometimes the shareholders (or partnership) agreement forces the other owners to buy the deceased/disabled owner’s shares but they don’t have the money to do so.

We have found that the best way to deal with these situations is for the owners to conclude a buy and sell agreement to regulate the purchase and transfer of the deceased/disabled owner’s shares.

This agreement usually allows for all owners to take out buy and sell insurance policies on each other’s lives, which policies will provide the funding for the purchase of the deceased/disabled owner’s shares when the time comes. This agreement is therefore, a useful succession planning tool and should be considered to ensure the continued success of the business and the reduction of disputes between owners. Owners must ensure that this agreement doesn’t contradict the shareholders (or partnership) agreement.

Should you require, or need advice on a buy and sell agreement or a shareholders/partnership agreement, please email Kerry-Lee van Heerden.