The following outlines the basis for shareholder buyout
Upon the death of a shareholder the remaining partner(s) or shareholder(s) are now in business with the beneficiaries of the late partner or shareholder's estate.
In most cases this is not ideal.
A buy/sell agreement outlines what will happen if a partner/shareholder dies or become disabled (Who receives the shares, how the business will be valued etc).
Funding the purchase price of the shares is important
Here are some options for you to consider.
The remaining partner(s)/shareholder(s) :
1. Borrow from the bank. This requires $ for $ repayment plus interest
2. Use working capital. $ for $ repayment plus tax as it goes from the company to personal funds
3. Sell business assets. $ for $ plus opportunity costs on the assets sold
4. Sell personal assets. $ for $ plus loss of enjoyment
(Literal) cents in the dollar through an insurance contract
A 60 year old effects life cover to fund the buy out :
· The annual cost at age 60 would be .75% of the amount being funded
· At age 65 the annual cost would be 1.5% of the amount being funded
· At age 70 the annual cost would be 2.7% of the amount being funded
At death or disablement, the capital amount is immediately available to the remaining partner(s)/shareholder(s)