If you have a business partner, you need a buy-sell agreement. Think of it as a will for your business. It dictates exactly what happens to a partner's shares if they die, become disabled, retire, or get divorced.
The "Unwanted Partner" Problem
Without a buy-sell agreement, a deceased partner's shares typically pass to their estate—usually their spouse. Suddenly, you are in business with your late partner's husband or wife, who may know nothing about the industry but now has a 50% vote on your decisions. A buy-sell agreement allows you to buy them out immediately.
Funding is Key
The agreement sets the terms and the price, but it doesn't provide the money. That's where insurance comes in. By structuring life insurance policies on each partner, you ensure that the surviving partner receives a tax-free death benefit exactly equal to the value of the shares they need to buy. The family gets cash; you get control. Everyone is protected.