Many business owners don’t want to think about what will happen to their company if they were suddenly unable to be there because of death or disability. Many owners realize that they are key to the organization and that without appropriate business succession planning, that the company would be in real trouble overnight if there was no contingency plan or catastrophe plan in place.
This plan may be referred to as a contingent buy sell. The purpose of a contingent buy sell agreement is to have a known buyer with clear terms that will allow for the orderly sale of the business. It is an attempt to prevent other catastrophic issues such as a fire sale or the total collapse of the company associated with the disability or the death of one owner. Contingent buy sell agreements are similar to regular buy sells. It is an agreement between a prospective buyer and the owner of a business, such that the buyer can purchase the owner’s interest if and when a triggering event occurs.
More often than not, these triggering events include the disability or death of the owner. A contingent buy sell agreement often includes parties outside of the business as possible future buyers.
This can only be applicable if there are parties in the agency designated as key who don’t have any written agreement or stock in place regarding their role if something were to prematurely happen to the owner. In these situations of a contingency buy sell, it is extremely important to find the right party to possibly take over the business in the future.
