How a Buyout Agreement Could Save Your Business

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If you own a business with a partner and you have not planned for a catastrophe, then you could end up creating a huge mess down the road if something should happen.

For example, if you own a company that’s worth $5 million and you and your business partner both own 50% of the company, then both of you would have $2.5 million in your estate. What happens if your business partner dies?

Say your partner, “Joe,” has a wife and four kids, and Joe dies suddenly. The stock that he owns will then be passed onto his wife, who will need every bit of that $2.5 million to take care of the family after Joe’s death. What if you don’t have the money to pay that amount?

One thing that you can do is have a note that says that in the event of your partner’s death, you will pay the $2.5 million estate to your partner’s family over a five- or 10-year period. The problem is that notes aren’t deductible, and the payments to your partner’s wife aren’t deductible, and it could create a huge cash flow problem for you and could put the company in jeopardy.

You need to have a buyout agreement that’s called a “buy-sell” agreement. That agreement will have a set price and terms that are agreed upon ahead of time that will enable the surviving partner to buy out the other partner’s share in the company in the event of their premature death.

“Our company helps business owners figure this all out.”

One of the important things to think about is having life insurance on each partner. You can go to a life insurance company and get an insurance policy that is equal to the amount of value that each partner owns (in this case, $2.5 million each) and make the other partner the beneficiary of that payout. Then, in the event of your partner’s death, the insurance will pay out to you, who will then turn around and pay the surviving spouse. Then the spouse will return that stock back to you.

Sometimes people think it’s a great idea to have the corporation be the beneficiary or the owner of the insurance policy. That can end up being a big mistake because depending on what type of corporation you have, there can be alternative minimum taxes on the money the corporation receives. You can also run into problems when getting the stock back that would cause you as the surviving partner to lose a substantial amount of money.

If you do the agreement and buy the stock from your partner’s spouse, then your basis will go up significantly. If you don’t do this correctly and you sell the company later, you stand to lose quite a bit of money in taxes.

Our company helps business owners figure this all out. We help you design the structure of what that buyout agreement should look like and can help you find the right insurance companies that fit your company’s need to able to insure each other and have the money to complete the buyout in the the event of an unexpected death.

You really want to plan ahead on this, so if you have any questions or you want to get this process started, give me a call or send me an email. We’d be happy to help!

If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.

The True Value of Entrepreneurship

My company works with entrepreneurs at all levels of success.

Sometimes, starting a business is like loading an airplane at the end of the runway. Once you’re set to go with enough fuel for a long trip and start heading down the runway, you might start wondering whether the plane is actually going to take off. Eventually the plane starts to gain some altitude and you’re finally off the ground.

At this point it’s a relief to be in the air and on your way. The same is true of business. But, what happens when you notice tall trees directly in your path at the end of the runway? How do you get enough altitude to overcome these obstacles?

Things might be rough at first, but eventually you’ll find that you’ve reached a point where you can cruise a little. This new series, which will be focused on entrepreneurs, is really aimed at those who have cleared the trees and are cruising in their business.

I run into a lot of burnt-out people who have been in business 10, 15, or even 20 years and are experiencing a lot of problems. Whether it’s because of issues with employees, financial issues, growth issues, or anything else, these people have become disheartened over time. People like these have “put on dark glasses”—to them, everything is “shaded.”

Looking through such a dark lens makes hard for them to see any opportunities ahead. All they can focus on is fear and anxiety about the future. All of a sudden their hope, vision, innovation, and sense of destiny shrinks.

If this sounds like you, it’s time for a pep talk.

The first thing I want to remind you of is that as an entrepreneur, what you do is critically important to the marketplace. No civilization would be able to last without vibrant entrepreneurialism.

“Take those dark glasses off, start thinking about your purpose, and ask yourself, ‘What can I do with my gift?'”

It’s an incredible feeling to live in a country that allows you the freedom to work and create businesses. Entrepreneurs are the key ingredient to the survival of a community. Additionally, entrepreneurs play a big role in upholding our democracy.

There would be no freedom if it weren’t for entrepreneurs—who fight for liberty and equal opportunity in the marketplace. We are a free people largely thanks to entrepreneurs.

Entrepreneurs provide economic vitality through the job opportunities they bring. Those job opportunities lead to family stability, which allows communities and people to grow.

If you know me, you know that I believe in the spiritual power things hold in life. I truly believe that entrepreneurs are essential to carrying out God’s strategic plan. I personally believe we’re all made in God’s image and that he loves us all.

As an entrepreneur, you provide the stability He wants us to all have in life. Your entrepreneurial position provides opportunities for families, teaches people the value of work, and allows communities to thrive.

In many ways, I believe that entrepreneurs are ambassadors of God. If you have been given a skill, a passion, or talent—you have been given a gift. It’s incredibly important that you accept the destiny brought by your gift. Entrepreneurship is not all about money; it’s about the benefits and benchmarks you provide within the marketplace and community.

Finally, remember that you are instilling things in people that are the fundamentals of life. It is so important that you recognize the value of what you do as an entrepreneur.

So, I want you to do something. Take those dark glasses off, start thinking about your purpose, and ask yourself, “What can I do with my gift?”

If you can develop a vision for your future, you can achieve a lot of great things.

If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.