Co-workers discuss a buy sell agreement during lunch
Protecting the Next Generation of the Business You've Worked So Hard to Build

Buy-Sell Agreement: Help Assure the Continuation of Your Business

Most small businesses fail to survive beyond the first generation. One reason is failing to plan for the disposition of the business at the owner's death, disability, retirement or withdrawal.

A buy-sell agreement is a contract that helps assure the continuation of the business by obligating the company or co-owners to buy, and obligating you or your estate to sell, the business interest at the occurrence of specified events such as your death, disability, withdrawal or retirement.

Drafted properly, a buy-sell agreement will help you set the value of the business for federal estate tax purposes and may reduce the chance of valuation disputes with the IRS.1

Woman on her phone discussing the future of her business

Advantages of a Buy-Sell Agreement

Leaving a family business to your children at your death through will provisions may cause problems. A disgruntled heir or a dissatisfied spouse may dispute your will. Often, part of the business ends up in the hands of inactive heirs who can add little to the business but who want income equal to working stockholders. The result could lead to an increased probability of business failure and family discord. Most importantly, a will cannot address the central problems created when you, as the business owner, die or become permanently disabled.

A properly funded buy-sell agreement helps assure:

  • An orderly transfer of the business to the one heir who will be a working stockholder
  • Avoidance of conflicts between two heirs with each owning 50% and only one of them working in the business
  • Heirs receive the fair market value of the business as an inheritance
  • Value established in the buy-sell agreement is binding on the IRS for federal estate tax purposes
  • Continuity in management provides stability for customers, staff, creditors and investors
Business owner reviews a business continuation plan

How to Structure a Buy-Sell Agreement

Buy-sell agreements can be structured to help meet the needs of both the business and the owners, taking into consideration tax implications and individual goals for the transfer of the business. In order for a buy-sell agreement to be effective in setting the value for estate tax purposes, the agreement must:

  • Be a bona fide business agreement
  • Not be a device to transfer the business to family members for less than full and adequate consideration
  • Have terms comparable to similar agreements entered into by persons in an arm's-length transaction
  • Be valid and enforceable under state and/or federal law
  • Be binding on the parties during life and at death
  • Contain a formula for determining the price of the property when one of the parties dies or be based on an independent appraisal completed after death

Why Western & Southern?

Backed by 130 years of financial strength, Western & Southern has been providing individuals, families and small businesses — people just like you — with exceptional personalized service since 1888. As one of the strongest life insurance groups in the world, we’re here to help protect your future, offering you stability you can count on. Our products and services include life insurance, annuities and a wide range of other financial solutions to meet your specific needs.


1A Buy-Sell Agreement identifies actions to take in the event a co-owner dies, is forced-out or chooses to leave the business. An attorney can assist with the Buy-Sell Agreement to ensure it is legally binding and a financial representative can assist with product selection. Each business owner purchases a life insurance policy on each of the other owners. When the owner dies, the surviving owners use the death benefit to purchase the deceased owner’s share of the business. Products issued by The Western and Southern Life Insurance Company and Western-Southern Life Assurance Company and other life insurance member companies of Western & Southern Financial Group can help meet these needs.

Members of Western & Southern Financial Group and their agents do not provide tax or legal advice. Please contact your tax or legal advisor regarding your situation. The information provided is for educational purposes only. 

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