Buy-and-Sell Agreements

Protecting your business, your partners and your family if a co-owner dies or becomes disabled.

If a co-owner dies, their shares form part of their estate and may pass to heirs who have no role in the business. A buy-and-sell agreement, funded by life cover, allows the remaining owners to buy those shares at a fair price, while the deceased’s family receives cash.

What it achieves

  • Business continuity: the remaining owners keep control of the business.
  • Liquidity for the family: the estate receives cash rather than shares in a business it cannot run.
  • A fair price: an agreed valuation method avoids disputes.
  • Certainty: clear triggers, such as death or disability, and a clear process.

Funding with life cover

Buy-and-sell agreements are usually funded by life or disability policies. The ownership structure of the policies matters for both the outcome and the tax treatment.

Tax considerations

Properly structured buy-and-sell arrangements can benefit from estate duty and capital gains tax relief. Poorly structured arrangements can attract unexpected tax.

Who needs one

A buy-and-sell agreement is important for:

  • Companies with two or more owner-managers.
  • Partnerships and professional practices.
  • Family businesses with several shareholders.
  • Businesses where an owner’s skills or relationships are key.
  • Owners whose families depend on the value of their shares.
  • Businesses with outdated agreements or insufficient cover.

How we set it up

Four steps to a workable arrangement.

  1. Review
    We review your shareholding, MOI, shareholders’ agreement and existing policies.
  2. Structure
    We agree the triggers, valuation method and policy ownership structure with you and your financial adviser.
  3. Drafting
    We prepare the buy-and-sell agreement and align it with your shareholders’ agreement and wills.
  4. Review regularly
    Valuations and cover should be updated as the business grows.

Your buy-and-sell agreement should be coordinated with your will and your spouse’s position under your marital property regime.

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What to prepare

Information we need.

  • The company’s MOI and shareholders’ agreement.
  • The current shareholding.
  • Details of existing life and disability policies.
  • A recent business valuation, if available.
  • Your financial adviser’s contact details.

Common Questions

The deceased owner’s shares pass to their estate and heirs. The remaining owners may have to work with new shareholders or find funds to buy the shares on uncertain terms.
Common structures include cross-ownership by the owners, ownership by the company, or a trust. Each has different legal and tax consequences.
The agreement usually sets a valuation method, such as an agreed value updated regularly or an independent valuation at the time of the trigger event.
It can. Disability triggers need careful definitions and suitable disability cover.
At least every few years, and whenever the business value or ownership changes significantly.

PROTECT YOUR BUSINESS AND YOUR FAMILY

We prepare buy-and-sell agreements that work with your shareholders’ agreement, your wills and your financial plan.

Read more: Buy-and-sell agreements for business partners · Shareholders’ agreements

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This page is general information and not legal advice.

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