Understanding Cross Purchase Buy-Sell Agreements
Sunflower Pool and Patio, with their focus on customer-service, provide quality pools and patios so you can enjoy them for many years to come. But what happens in the future? Is your partnership ready for a smooth transition without any worry? A comprehensive cross purchase buy-sell agreement ensures that if something should happen to you or a partner, you have a clear road map to follow for a smooth transition. If you are partners in a pool business, you cannot afford to be exposed to disaster as a result of a bad buy-sell agreement. This will quickly become your most important business decision and you can avoid it by making sure you have a cross purchase buy sell agreement in place and that it is continuously updated.
As it is for any business, having the right agreements in place are the most important aspects of ensuring success. A cross purchase buy sell agreement is one type of business agreement which provides structure and security to your pool business partnership.
A buy-sell agreement defines who can take over ownership when one of the business partners dies or leaves the company for any reason. The agreement then specifies in detail how the partners are to transfer the business interest through the purchase of the deceased partner’s share of the company. Without this agreement in place, the company’s previous workers comp insurance policy may not apply, leaving you and your family or your estate at risk financially.
An agreement used for more than one partner should have additional clauses for all contingencies, including retirement, disability, divorce or death. A buy-sell agreement provides the owners with peace of mind that the interest will be bought and sold on predetermined terms. This alleviates confusion and anxiety regarding the company’s future. In the past, when you lost a business partner, your company could easily fall apart and even close down. Now, when a business owner dies, their family can benefit from the increased value of the business, since the business as well as the other partners will not be affected.
You should also consider the method on how the business will be valued and paid out. The payment for the buying of the interest may occur over time or all at once, depending on how much money is available to be used.
You should always have a lawyer create your buy-sell agreement, as they can determine your needs and help you understand how to properly increase financial security. A buy-sell agreement is an overall consideration of how you are doing business and how you plan to move forward, and a lawyer can help ensure that you are protecting your money and investments.
Buy-sell agreements contain several key elements which are all important in order to have an accurately defined and organized business interpretation. These elements include:
- Valuation methods
- Payment terms
- Contingency clauses
These are some important legal elements which you can discuss with your attorney on how to include them in your buy-sell agreement. Your attorney can also help you determine how much your business is worth now and in the future, to ensure that you are not paying too much for a partnership buy-in or out.
Cross purchase buy-sell agreements have many advantages for you and your business. These agreements protect the business, the owners, and the deceased owner’s family. Other advantages include:
- Continuity in the business
- Immediate liquidity for the estate
- Protection for remaining owners
The most beneficial way cross purchase buy-sell agreements can affect your business is to provide continuity in the future of the business. It eliminates the need to terminate the business if a partner dies. The estate has immediate liquidity, and your family receives the proceeds of the policy, which can be the increased value of the business at that time.
Cross purchase agreements have a successful legacy, because for regular stockholders, the stock needs to be purchased through the estate. This helps protect the remaining owners and ensures that each owner has a clear and stable future in the business, whether or not they are participating in running the business. Otherwise, the business could fall prey to the whims of the personal representatives.
In Kansas, cross purchase buy-sell agreements can be formed by a registered agent or a reputable pool and patio professional service like Sunflower Pool and Patio.
