Business Succession

Buy-sell strategies

When structured correctly, and funded with life and disability insurance, a buy-sell agreement provides a solid start to an exit plan, and those who depend on the future success of the business.

A properly funded buy-sell agreement offers the following benefits:

• Provides departing owners a market and price for an asset that might otherwise be hard to sell
• Enables remaining owners to prevent an unqualified individual from acquiring an interest in the business
• Minimizes business disruptions resulting from disagreements among owners at various triggering events
• Provides assurances to employees, customers, suppliers, and creditors that the business can remain competitive through owner transitions

Get started by reviewing insurance-related best practices (PDF). Then learn about the three most common buy-sell options (PDF) you can share with clients—cross purchase, entity purchase, and wait and see.

Which tax-exempt solution is right for your client?
Match prospects and their challenges with our solutions using the tax-exempt decision grid (PDF).

Solutions

Cross purchase buy-sell

Client overview flyer (PDF) | Sample proposal (PDF) | Request for proposal (PDF)

Sample agreements:

• Corporate cross purchase (PDF)
• Partnership cross purchase (PDF)

Entity purchase buy-sell

Client overview flyer (PDF) | Sample proposal (PDF) | Request for proposal (PDF)

Sample agreements:

• LLC taxed as partnership entity purchase (PDF)
• C corporation entity purchase (PDF)
• S corporation entity purchase (PDF)
• LLC taxed as S corporation entity purchase (PDF)

Related: U.S. Supreme Court decision hinders entity buy-sell arrangements (PDF)

Entity purchase buy-sell with short-year election

Client overview flyer (PDF)

Multi-owner buy-sell

Client overview flyer (PDF) | Sample proposal (PDF) | Request for proposal (DOC) | Sample financial model (DOC)

Select Buy-Out Plan^SM

Client overview flyer (PDF) | Request for proposal (PDF)

Business continuation LLC

Client overview flyer (PDF) | Understanding BCGP (PDF) | Sample agreement (PDF)

One owner (100% ownership) transition planning options:

• Sole owner transition plan
  Client overview flyer (PDF) | Request for proposal (PDF)
• No sell buy-sell
  Client overview flyer (PDF) | Request for proposal (PDF)
• One way buy-sell
  Client overview flyer (PDF) | Request for proposal (PDF) | Sample agreement (PDF)

Employee stock ownership plans (ESOPs). Buy-sell strategy where a business establishes an employee-owned company and offers a flexible, tax-favorable way to exit the business, provide retirement benefits, and retain and motivate employees. ESOP website

Related:

• ESOP planning with life insurance guide (PDF)
• ESOP repurchase website

Funding buy-sell strategies

Buy-sell agreements involve the selling and buying of the departing owner’s business interests according to the terms of the formal agreement. This means money will be needed to complete the transaction when it occurs. So, it’s best to have a plan for securing that money—that’s where funding strategies come in.

There are basically five options for funding a buy-sell strategy: cash, loan, savings, installment sale, and/or insurance.

Solutions

Installment sale. This funding strategy involves the seller receiving one or more payments from the sale of the business. This can be effective to convert business interests to retirement income while spreading the gain from a sale over a period of time.

• Installment
  Client overview flyer (PDF) | Sample financial model (PDF)
• Interest-only note
  Client overview flyer (PDF) | Sample financial model (PDF)
• Lump sum
  Client overview flyer (PDF) | Sample financial model (PDF)

Insurance solutions. We offer a variety of life insurance products as well as a disability buy-out product that can be used to fund a buy-sell agreement based on your client’s unique needs.

Life insurance product options | Disability Buy-Out insurance

Gifting. Funding strategy used to transfer business interests—potentially at a discount—from current owners generally to family members.

Request for proposal (PDF) | Legacy & Estate Planning website

Grantor Retained Annuity Trusts (GRATs). Funding strategy used for clients who want to transfer business interests with minimal gift and estate tax liability.

Client overview flyer (PDF) | Sample proposal (PDF) | Request for proposal (DOC)