Posted on August 09, 2013 09:25 PM

Everyone who is an owner of a business should have a plan to determine what will happen if he or she is unable or unwilling to manage the company.  If there is a single owner who runs the business, ownership can be transferred to a family member or it can be sold.

If there is more than one owner of a company, everyone must consider how to buy out the other owners in the event of disability or death.  Ideally, the business owners would have a buy-sell agreement implemented while all of the owners are younger and in good health so their ownership interest can be bought out by using life insurance and/or disability insurance.

However, if insurance is not a practical option, a buy-sell agreement may require the deceased or disabled ownership interest to be purchased over time.  An appraisal on the date of death/disability of an owner, or an evaluation based on past and/or future earnings are the most common ways of determining a business’s value.

Restricting the sale of an ownership interest to an outside third party is an option to be considered as well.  When a business owner wishes to sell his or her ownership interest, he or she can be required to obtain a verified offer and the other business owners would have the first opportunity to buy that interest under the same terms and conditions.  It may also be desirable to require a buyout in the event someone wishes to leave the business as it may be extremely difficult to find a purchaser.