Create liquidity
Upon a business owner’s disability, retirement, or death, his or her family continues to need cash to pay ordinary living expenses as well as potential estate tax liability. Estate taxes are usually due nine months after the date of death. Selling a business under these circumstances can result in the family receiving less than the fair market value.
Set a fair selling price
A business valuation strategy, while all owners are active, remains subject to arm’s length negotiations. Once a business owner has left the business, negotiating a fair sales price becomes more difficult for the owner (or the owner’s estate) because the remaining owners hold most of the cards.
Fix value
A Buy/Sell Agreement ordinarily sets the valuation for estate tax purposes. This allows the owners to plan their estates and reduce the risk of costly valuation disputes among the owners or upon estate tax audit.
Guarantee a buyer
A Buy/Sell Agreement benefits the selling owner’s family by providing a guaranteed buyer(s). The remaining owners are protected against the sale of significant (or, worse yet, majority) interest to an outside investor.