Buy Out Agreements or Corporate Stock Redemption Plans

man upsetMany small closely held corporations and partnerships have a written agreement as to what must take place if:

  • A shareholder or partner leaves the firm willingly
  • Dies an untimely death
  • Becomes disabled

These are referred to as  either “Buy Out Agreements or Corporate Stock Redemption Plans.”

The problem with many of these agreements are most of them never get properly funded. If a you have a business with two equal partners that’s worth 1 million dollars, the value to each partner is $500,000. If one partner dies, where does the remaining partner find $500,000 to meet their written buy-out agreement?

He can borrow it ( if the business/individual has good credit) and pay a huge amount of interest over the period of the loan, or they could fund the arrangement with Life Insurance for pennies on a dollar for those resources.

These plans, along with the value of the business, should be updated every few years to make sure that the business and individuals have enough coverage to cover the increase in value.

Questions?  Give me a call and I’ll be happy to discuss.

Jim Brassard
Brassard & Associates

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