For surviving partners, it avoids the problem and cost of borrowing and allows the company`s operations to continue without costly interruptions, strengthen its credit position and ensure continuity of management, ensure that ownership and control of the business remain in the hands of the surviving owners. The funds used to purchase the deceased`s share are actually insurance premiums purchased for amounts on the dollar, and may be lower than any other alternative. Unbiased professional advice is especially important when it receives life insurance for a buy/sell contract. Entrepreneurs and contractors are usually very busy people without much time to evaluate the shop and meet several agents. Partners should cooperate with a certified lawyer and accountant when entering into a purchase and sale agreement. A buy-sell contract determines the fair value of your ownership shares, either by using a valuation formula, z.B a multiple of profit or turnover, or by setting a value directly. “With a buyout agreement, the company acquires separate life insurance contracts on the life of each owner, pays premiums and owns and beneficiaries of the contract. When an owner dies, the company uses the income tax-free death allowance to acquire the deceased owner`s shares,” says Muth. “With a buy-buy cross, each owner acquires a policy for the other owner or owners.
If one of the owners dies, the survivor or survivors use the death money to acquire the deceased owner`s shares. If many business owners wish to enjoy the benefits of a cross-purchase contract while avoiding the risks associated with a cross-purchase, the creation of a limited liability company managed by managers (“Insurance LLC”) should be considered in order to maintain and manage the insurance policies that ensure the lives of entrepreneurs. Existing policies owned by the owners can be transferred to Insurance LLC or new policies can be purchased by Insurance LLC. Each member of Insurance LLC is designated as the economic beneficiary of life insurance policies that insure other members whose interests in that member`s operating entity are required to purchase to death under the operator`s sales contract.