Buy-sell agreements were like an ‘enterprise will’ for business partners and should be one of the first issues addressed, a commercial law firm has said.
Andreyev Doman principal Andrew Andreyev said buy-sell agreements (BSAs) were “umbrella agreements which sat over the different (partnership or company documents) which were often inconsistent or off-the shelf”.
Surprisingly, he said, financial advisers were very aware of the need for BSAs because they were in the business of trying to encourage people to plan for life after work.
“You have to think about it at the front of the business,” he said.
“How do you want it to end? That’s very hard with entrepreneurs because they’re more concerned with getting in to business and staying in, than selling the business they’ve built.”
Andreyev likened BSAs to enterprise wills and – by extension – to enterprise estate planning.
With one-third of marriages ending in divorce, and more than 30,000 bankruptcies in Australia each year, people in business had to face the hard questions of what would happen if the sole proprietor or one of two directors were to die, divorce, default, or be disabled.
For example, an enduring power of attorney stopped at the person’s death, so companies or partnerships could be locked-up for months until probate was declared.
Preventive solutions included a company power of attorney, or a buy-sell agreement.
While complex BSAs which included property co-ownership agreements may cost $5,000 to $6,000 according to the firm’s price guide, Andreyev argued this was money well-spent when times were good to prevent extremely costly litigation after divorce, death, departure or disability when business partners had “lost focus”.
Insurance was usually best held by partners themselves – and paid for by the parties who would benefit from the policies – he said.
Andreyev cautioned against insurance being held in a self-managed superannuation fund because “it’s hard to get, and the ATO [Australian Taxation Office] gets more excited that the sole purpose of the fund may not be within the guidelines”.
