Buy-and-sell Agreement | Business Insurance | Sanlam
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Buy-and-Sell Solution

Who will be your new business partner when your current partner passes on?

Take Control - don't let it be a surprise.

Why you need this

Why Buy-and-Sell Insurance is important.

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The Need for a Buy-and-Sell Agreement

When a co-owner in a business dies, the affected owner’s estate can be left severely exposed, but the remaining owners could also face potential problems.

The potential challenges created for the deceased owner’s estate

  • The remaining owners might not have the resources to purchase the shares from the estate;
  • The spouse may not want to participate in the business which means that he/she is left at the mercy of the existing owners;
  • The deceased owner may have had unique skills that he/she brought to the business, meaning that the risk in the business increases if those skills are no longer available to the business;
  • The deceased owner may have earned a salary in the business, and when he/she dies the spouse cannot simply claim that salary unless he/she actually works in the business on the same basis as the deceased owner.

The potential challenges created for the remaining owners

  • The executor of the estate of the deceased owner might interfere in a business about which he/she knows nothing;
  • He/she might want to sell the owner’s interest to the highest bidder, opening up the business to unknown external investors; and
  • The existing owners may not have the funding to repurchase the deceased owner’s interest at that stage.

  • The alternative to insurance through a buy-and-sell arrangement is to borrow, from a commercial bank, the money needed to buy the deceased owner’s share. However, even if the business is successful in obtaining such a loan, the terms and repayment period could possibly make it unaffordable from a cash-flow point of view. In most cases, insurance would therefore be the more affordable solution.

The Solution

The purpose of a buy-and-sell agreement is to provide the surviving co-owners with cash to purchase the interest of a deceased co-owner.

According to the agreement, each co-owner takes out life cover on the other co-owners’ lives. The life cover pays out on the death of a co-owner, which funds the purchase of his/her interest by the surviving co-owner(s).

Disability cover can also be included to fund the buyout of a disabled owner’s share of the business.

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