Why your business needs a buy-sell agreement

March 28, 2023 -  By
(Photo: mediaphotos/iStock / Getty Images Plus/Getty Images)

(Photo: mediaphotos/iStock / Getty Images Plus/Getty Images)

If you’re a business owner, step No. 1 for 2023 is to put in place a buy-sell agreement. If you’re not a business owner, skip to step No. 2. 

Step No. 1

A buy-sell agreement provides all the details for the sale of your business when a triggering event occurs.

Unfortunately, the most common trigger event of a buy-sell agreement is the death of a business owner. With this agreement in place, there is a predetermined plan to implement for the survival of the business and the protection of the families involved. Without such an agreement, everyone must figure out what to do next or, worse yet, fight about what to do next.

If two or more people own a business, a buy-sell agreement typically involves the remaining owners acquiring the deceased owner’s shares. If one individual owns the business, a buy-sell agreement may involve the sale of the company to a competitor or a key employee. Buy-sell agreements are usually paired with insurance to provide funding for the transaction to occur.

Step No. 2 

Another step for 2023 is to update your will. Most people don’t have a will, so this is an easier step because you don’t need to locate your existing will and determine what to change and how to legally make those changes. The rules governing will revocation and modification are tricky, and you can make errors easily, resulting in unintended consequences. If you don’t already have a will, you begin with a clean slate.

Michigan, like many states, has a statutory will. This is a simple will, created by attorneys and approved by the state. It is entirely free to download and use. But there is a catch. You can’t change anything in the statutory will, or it will be invalid. It’s a fill-in-the-blank form that works for most people with simple situations. If you need a more complex document, a statutory will won’t help you.

A will must comply with the laws of your state to be valid. You must be able to locate the will when needed. The best way to make a will discoverable is to place it on file with your county probate court. In Michigan, there is a $25 filing fee to do so. But this is a small price to pay to save your family from digging through your office files for days on end trying to find your will.

Step No. 3

A final step for 2023 is to avoid probate entirely by creating a trust and employing other strategies to distribute all your assets through nonprobate transfers, leaving nothing remaining for intestate proceedings. By doing so, you will leave a wonderful legacy for your family as a person who took careful steps to protect and ensure the assets wouldn’t need to endure an unnecessary and public probate process.

Trusts and nonprobate assets sound complicated, and they can be. But they don’t have to be. For example, it’s not complicated to change a deed so that real estate transfers by operation of law upon death. It just takes some forethought and implementation to get it done.

The bottom line is we all will leave a legacy. What do you want yours to be, and what will you do in 2023 to protect that legacy?

Now go forth.

This article is tagged with , , and posted in Business, From the Magazine

About the Author:

Phil Harwood is a Senior Advisor with Tamarisk Business Advisors. Contact him at phil.harwood@tamariskadvisors.com.

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