Can a Buy-Sell Agreement Protect a Disabled Owner’s Family?

The risk of becoming too sick or injured to work, before retirement age, is much more prevalent than death. How would a business partner handle maintaining their business interests if they became physically or mentally handicapped?

The partnership is one of the three most commonly used types of business organizations. A partnership is an association of two or more persons who carry on a business, as co-owners, for profit. It is more complex and usually requires more legal formalities than a sole proprietorship.

The law of partnerships is relatively uniform; most states have based partnership statutes on the Uniform Partnership Act (UPA). The UPA states that each partner has a fiduciary relationship to the partnership and must act in good faith and for the benefit of the partnership.

To prevent problems when a partner dies or leaves the partnership for any reason, a partnership agreement often includes a buy-sell agreement provision. By law, this provision must be in place when the partnership is created. It describes the manner of compensation for the survivors of a deceased partner or for the withdrawing partner.

Often, partners provide for the possible death of a partner by taking out a life insurance policy on the life of each partner. The policy is made payable to the partnership or to the surviving partners, enabling the partners to pay the amount required in the buy-sell agreement to the survivors of the deceased partner, and remaining partners are financially able to continue to do business.

The same rationale for using a life insurance policy to fund a buy-sell agreement upon death applies to using a disability insurance policy to fund a buy-sell agreement upon total disability, whether permanent or temporary.

Rationale for active business owners

  • Acquire business interest of disabled owner at a fair price
  • Maintain ownership and control
  • Smooth transition of ownership
  • Transfer the decision of when the definition of “total disability” is met to a third party

Rationale for the disabled business owner

  • Proceeds for the sale of his/her share of the business is received
  • Eliminates future worry about business value fluctuations
  • Taxed only on the gain from the sale of the business, often at more attractive capital gains rates

Definition of disability

The definition of disability to use in the disability buy-sell agreement can be the definition contained in the insurance policy that will fund the buy-sell. This transfers the risk of defining disability from the active business owners to the insurance company, avoiding potential disagreements among all the partners.

Disability buy-sell insurance matters because a partner’s disability could make continued ownership of a partnership all but impossible.

Have questions? Call us to put protection in place.

BGES Group, located in Larchmont, N.Y. are New York Construction Insurance Specialists that represent 50+ companies and all the BEST general & umbrella liability programs!  We offer every coverage you need including property, builders risk, inland marine, general liability, umbrella liability, auto, bid & performance bonds, workers’ compensation, N.Y.S. disability and group health.  We are extremely responsive, responsible, trustworthy, fast, minimize your insurance headaches, we don’t charge ridiculous policy or service fees and when you call, text or email, whatever time of day, even weekends, we are there to help YOU! 

BGES Group are Workers’ Compensation Insurance Specialists for Tri-State Business Owners: Unhappy with your rates, company, being cancelled, losses causing difficulty getting coverage, in the middle of an audit dispute, payrolls misclassified, whatever your issue, we can help!  We have special programs for: Auto Service, Contractors (especially New York), Limousine Services, Logistic Companies, Manufacturers, Recyclers, Truckers, we can help ANY tri-state business owner.  We are considered “Preferred Agents” for this one program that if we can get you into their pricing is excellent, offers long-term coverage stability and can cover multi-state operations. Program takes the hassle out of doing annual audits too.

If you would like to speak with us call Gary Wallach at 914-806-5853 or click here to email or click here to visit our website.

Company: BGES Group, 216A Larchmont Acres West, Larchmont, NY 10538



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