You and your business partner are kicking butt right now. You’ve got all your contracts in writing. You’ve got a solid operating agreement that ensures there won’t be any deadlocks. You’ve also got a buy-sell agreement in place in case anything happens to you or your partners. Basically, you’re doing everything the right way, and your business is thriving.
Then your partner gets hit by a bus and dies. Ouch. According to your buy out agreement, you’re entitled to buy-out his share for a set price from his estate. His share is worth $1 million, and you’ve got to come up with the money in 60 days. Where does that money come from? Will it come out of your revenues? Do you have that much cash in your emergency fund? The source of these funds should be insurance.
For any business transaction like this, you need to ensure that any significant losses to your company are protected by insurance. In this instant-death-by-bus scenario, an insurance policy could cover your purchase, and your business may never miss a beat. Insurance will pay you, then you’ll pay his estate for his share of the company. You’ll be the complete owner, and can move the company along. If you’ve got policies like this in your business, make sure you’ve spoken with a business insurance professional.