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If there is no history of family ownership and family goodwill exists. The best way is to sale the business by prearranged sale funded buy-sell agreement will guarantee the asset value if an employee(s) has shown the interest and the ability to continue the business. Upon completion of the agreement, life insurance should be purchased to fund the agreed upon purchase price.
The buy sale agreement between the owner and employees can also be funded by a split-dollar agreement. At death, this agreement provides funds for the buy-sell agreement . At retirement prior to death, the cash surrender value can help provide retirement funds.
The buy sale agreement of this kind is the best solution for sole proprietorship, because of the following factors
1. A qualified buyer for the business is established and the proprietor is assured that the family will receive a fair price for the business
2. The business is stabilized. Customers, suppliers and creditors, aware that plans have been implemented for the orderly continuation of the business proprietor.
3. All employees will be retained. Rather than eventually starting a competitive business and the employee will be eager to do a better job for the present employer.
The employer-employee buy-sell agreement can be advantageous to the estate and heirs
1.The estate receives full value for the business immediately and settles promptly and efficiently
2.The family is relieved of business worries.
There are also many benefits to the employees
1. No fear of job loss upon owner’s death and guaranteed funds to purchase the business at exactly the needed time.
2. Removal of the burden of principle payments and interest payments typical of all other forms of financing.
3. Do not have to contend with interference from executors who must be chiefly concerned with protecting the interest of the beneficiaries.
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