Buy-sell agreements, in plain English
A buy-sell agreement is a contract, drafted by your attorney, that settles in advance who buys an owner's share, at what price, and when. The usual triggers are death, disability, retirement or leaving the business. Without one, a deceased partner's share can pass to a spouse or heirs who never planned to run a company, and the surviving owners may have no cash to buy them out.
The agreement is the plan. Life insurance is usually how it gets paid for. It puts the cash in place at the moment the buyout is triggered, so nobody has to drain the operating account, borrow against equipment or sell to a stranger.
The two common structures
| Structure | How it works | Worth knowing |
|---|---|---|
| Cross-purchase | Each owner owns a policy on the other owners and buys the shares directly | Surviving owners generally get added cost basis in the shares they buy. It gets complicated with many owners. |
| Entity redemption | The company owns a policy on each owner and buys back the shares | Simpler to administer. Since the Supreme Court's 2024 Connelly v. United States decision, company-owned proceeds can raise the business's value for estate tax purposes. |
Because of Connelly, many owners are having their attorney and CPA review older redemption agreements. If yours was written years ago, it's worth a look. I can coordinate that review and handle the insurance side.
Key person coverage
Some people are the business: the estimator who wins the bids, the super every GC asks for, the owner whose name is on the bonding and the bank line. Key person coverage is life insurance owned by and payable to the company on that person. It buys time to recruit, cover lost revenue and reassure lenders, sureties and customers while the company regroups.
Employer-owned policies have to be set up correctly. That includes the federal notice-and-consent paperwork before the policy is issued, so the death benefit keeps its favorable tax treatment. That paperwork is part of how I set these up.
An excuse never fixed a failed job. A plan funded in advance does.
How I work with your attorney and CPA
Owners, ownership percentages, who the business can't run without, and what lenders and sureties rely on.
If you have one, we check its valuation method and when it was last updated. A stale value is the most common way these fail.
Shop carriers, match coverage to the agreed value, and set up ownership and beneficiaries the way your attorney structures it.
Business values move. We review annually so the coverage still matches the number in the agreement.
I'm not an attorney or a CPA and I don't draft agreements or give tax advice. I make sure the money is there when the agreement says it has to be.
Serving the South Hills and Mon Valley
I'm based in Bethel Park and work with families and business owners across the South Hills, including Bethel Park, Upper St. Clair, Mt. Lebanon, South Park, Peters Township, Baldwin, Whitehall, Pleasant Hills and Jefferson Hills, and through the Mon Valley in West Mifflin, McKeesport, Clairton, Elizabeth, Duquesne and Monongahela. Meetings happen at your kitchen table, by phone, or on video, whichever fits your schedule. I'm also licensed in Georgia.
Common questions
Do two-owner LLCs really need a buy-sell agreement?
Two-owner businesses arguably need one most, because one death leaves one survivor suddenly in business with the other owner's heirs. A buy-sell agreement and the funding behind it settle that in advance.
Are key person premiums tax-deductible?
Generally no. Premiums on life insurance the business owns and benefits from typically aren't deductible. With proper setup, including notice-and-consent before issue, the death benefit is generally received income-tax free. Confirm the details for your situation with your CPA.
What about a partner who becomes disabled instead of dying?
Good agreements cover disability too. That buyout can be funded with specialized disability buy-out coverage or through the agreement's payment terms. We'll look at it as part of the review.
We already have an agreement. Why would we revisit it?
Agreements go stale. Values change, owners come and go, and the 2024 Connelly decision changed how company-owned policies are treated for estate tax. A review with your attorney and CPA confirms the structure still works and the coverage matches the number.