PLAN FOR THE DISPOSAL OF YOUR BUSINESS 



Michael E. Bamea 



f allure to develop an adequate 

 plan tor the disposition of a 

 business interest at the death of its 

 owner may result in a forced sale of 

 the interest, be it a proprietorship, 

 partnership, or a substantial stock 

 ownership in a closely held 

 corporation. A buy-sell agreement 

 is often the only way to arrange for 

 the disposition of an owner's 

 business interest in a fair and 

 equitable manner. 



Buy-sell agreements are directed 

 toward the continuance of the 

 business interest after the death of 

 one or more of the owners The 

 existence of a buy-sell arrangement 

 is designed to eliminate the 

 problems which may arise if the 

 surviving owners are forced to 

 become business associates of the 

 decedent's family. Not only may 

 there be personality conflicts, but 

 inexperience and differing financial 

 needs are the seeds which may 

 cause the financial ruin of a once- 

 profitable business venture. 



A business that does not have a 

 buy-sell agreement may be 

 compared to an individual who 

 does not have a will. In each case, 

 the lack of planning does not mean 

 that important decision will not 

 ultimately be made. For example, a 

 person who dies without a will 

 transmits property according to a 

 definite plan. However, that 

 individual's property passes 

 according to a "plan specified in 

 the state law ot intestacy" rather 

 than according to the direction of 

 the decedent. Similarly, without a 

 buy-sell agreement, the sale of a 

 decedent's business interest may be 

 made, although the results of those 

 decisions may not be what the 

 business owner would have selected 

 (nor might they be what the 

 owner's family members or partners 

 have selected). 



Estate liquidity will be a paramount 

 concern for the decedent's family. 

 Every business owner will want to 

 assure the family of a fair and 

 reasonable price for the business — 

 not the liquidation price that may 

 result from a forced sale. Finally, 

 few people want their family's 

 future totally dependent upon the 

 fortunes of a business venture 

 which they no longer manage. 



A properly drafted buy-sell 

 agreement should accomplish the 

 following: 



♦ Give advance determination of 



the business's value for federal 

 estate tax purposes; 



♦ Assure that any future growth in 

 the value of the business accrues 

 to the benefit of those 

 responsible for the gain; 



♦ Provide the surviving business 

 associate with the cash with 



which to purchase the business 

 interest of the deceased.; 



♦ Assure a fair and adequate price; 



♦ Divorce the family fortunes from 

 that of the business; 



♦ Transform all illiquid assets into 

 a liquid income producing fund; 



♦ Provide that ownership of S 

 corporation stock, if applicable, 

 will continued by an eligible 

 shareholder. 



Countless business owners have 

 taken the foresighted step of 

 establishing some type of buy-sell 

 agreement. Too often, however, 

 adequate plans have not been made 

 to assure that the first objective 

 listed above will, in fact, be 

 accomplished at an owner's death, 

 whenever that might occur. 



One can, of course, never know 

 exactly when death will occur. It is 

 a fact, though, that when a business 



ODDS OF AT LEAST ONE DEATH BEFORE AGE 65 

 Expressed as number of chances out of 100 



(Based on 1980 Male CSO Mortality Tables) 



February/March 1992 



15 



