Posted by American Life InsuranceNote to Editors of the Guide:According to statistics, 60% of China’s small and medium-sized enterprises went bankrupt due to equity allocation issues.1.So in the United States, what should I do if there is a reallocation of equity under certain circumstances?Especially in the way of doing business in partnership, how to realize the protection of partners and enterprises in this process?The American business community has developed a very mature set oflife insuranceThe system of Funding purchase and sale contracts avoids the financial loss of partners and the risk of the company's failure to operate normally.The following is a case study.
[Video: What is Life Insurance Funding Sale and Purchase Agreement]
Joe and Steve worked together and founded a restaurant management company, GoodTaste, Inc. more than ten years ago. Joe and Steve are the core figures of this restaurant management company.For many years, Joe has been responsible for employee training and marketing. Steve is responsible for food purchasing and store management.
GoodTaste, Inc. is getting bigger and bigger in business. At this time, Joe and Steve began to consider how to ensure the normal operation of the business when one of them encounters an accident.
Joe and Steve are both married, and this business was built from scratch after they met each other step by step.Their respective children have all gone to college and are not interested in taking over the business of their parents. Joe and Steve hope that under any circumstance, both of them will guarantee absolute ownership of the company. Even if there is any accident on one side, the other side will continue to do GoodTaste, Inc..Therefore, the two decided to sign a cross-purchase buy-sell agreement (CrossPurchase Buy-Sell Agreement), and use a certain leverage function in the agreement, which also has the characteristics of long-term cash value accumulationLife insuranceCarry out capital design.
What is a sale and purchase agreement between business partners?
The sale and purchase agreement, namely the Buy/Sell Agreement.It does not involve the sale of the company, but ratherThe relationship between company ownersthis problem.Sometimes this agreement is also called a Buyout Agreement, which means that one party purchases the equity of the other party.
For example, if Joe suddenly announces a divorce, then Joe's wife may own Joe's equity (such as in California).In this case, Joe's wife can exercise the rights of shareholders, which may be a complicated situation that Joe's wife and business partners are unwilling to deal with.At this time, the sale and purchase agreement generally requires Joe's wife to sell her shares to partners in accordance with the agreement.such,The operation of the company will not be affected by Joe's personal situation.
Let’s consider other situations, when JoeAccidentally died.Disabled and unable to workOr want toEarly retirementHow can the company’s shares be legally allocated at the time of the year? If commercial loans are involved, how can the credit valuation at this time be maintained?
The following is to uselife insuranceThree cases of financial support for commercial sale and purchase agreements:
Accidental death
Having worked continuously for GoodTaste, Inc. for more than ten years, Joe decided to take a vacation in Central America.Although he knew that on the way to the sea resort island, Joe's plane encountered a technical failure, and no one survived the crash.At this time, because of the purchase and sale agreement, Steve is the beneficiary of the mutual insurance of the life insurance policy. Steve received Joe's death compensation and used it to buy Joe's shares in the company (the money became Joe's estate).Although the company has suffered huge losses because of Joe's death, Steve can still keep the company running normally. Joe's family got Joe's inheritance and there is no need to "be taken over" Joe's business.
Disability situation
Snow and ice are common in winter in the northeast. On the way to the company to work one morning, Joe suffered a car accident because of a slippery ice and snow road, leaving him disabled for life.Because of this, Joe cannot continue to work at GoodTaste, Inc.At this time, according to the sale and purchase agreement and life insurance, Steve can partially buy out Joe's company shares from the payment of the policy.At the same time, Joe also needs long-term financial support to pay all kinds of bills. Steve can continue to pay Joe long-term with an insurance policy in accordance with the agreement.
Retirement situation
GoodTaste, Inc. has been in business for more than 40 years, and it has brought rich returns to Joe.At this time, Joe decided to retire and spend more time with his family. Joe agrees to transfer the shares to partner Steve. At this time, Steve directly used the cash value of the policy to pay the first payment for the purchase of Joe’s shares in accordance with the sale and purchase agreement, and pay the balance regularly according to the agreement. Joe got the money as a pension and also had a stable long-term income.And GoodTaste, Inc. also continues to operate normally with a clear structure. Steve did not pay from his account and got GoodTaste, Inc.
Summary of experience
Use cash valuelife insuranceProviding financial support for commercial sale and purchase agreements is a very practical way to protect partners and enterprises.This method avoids the financial losses of the company and individuals in the case of appeals, facilitates the confirmation of shares and rights, and helps the company to operate in a long and healthy manner.In order to more clearly clarify the use of life insurance in a commercial sale and purchase agreement, this article simplified the description of the case.With the help of professional brokers, business financial consultants and lawyers, please develop a plan that is in line with the actual partnership business situation.
(American Life Insurance GuideNet Copyright)
