Buy-Sell Agreements in Maryland

Business continuation options for a surviving partner after a partner dies and there is NOT a Buy Sell agreement

1.Liquidation: Business must cease operation to sell of all assets at a discount price. The deceased's heirs will receive all proceeds as a part of the estate. Any remaining funds will be split amongst surviving partners. This adds to the taxable estate for the heirs and taxable income to partners. This is typically the least desirable option.

2.Survivng partners sell business to heirs: This option would allow partners to receive more funds than in a liquidation, however the question is where will the heirs get the money to actually purchase remaining partner's shares and settle the deceased’s estate at the same time? How will revenue and lines of credit be affected by such a change in ownership?

3.Reorganize: Heirs may become new partners or may find an outsider to purchase deceased partner’s share, ONLY* if all other partners agree. This brings into questions of business compatibility, experience and management talents among the new partners to run the business. The method of funding this transaction again also comes into question.

Without a written Buy Sell agreement and a tax-free guaranteed fund for it, all of the continuation options for non-familial partners can be messy and complicated. Heirs often want money in return for their inherited share and are not capable or interested in running the business. Surviving partners usually want the business to continue and become sole owners or choose ownership using their own criteria. Any assets paid out that were not in a funded agreement are also taxable events for all recipients, heirs and surviving partners. This can result in major losses in value for all parties.

Use this information to properly plan for continuation for your business, Bay Life can help if you so choose.