Certified Financial Consultant (CFC) Practice Exam

Which type of agreement specifies how a business will transfer hands when an owner dies or becomes disabled?

1. Disability buy sell

2. Partnership dissolution

3. Business succession plan

4. Life estate agreement

The correct answer is: Disability buy sell

The correct answer is that a disability buy-sell agreement specifically outlines how a business will be transferred in the event that an owner becomes disabled or passes away. This type of agreement is crucial in ensuring a smooth transition of ownership and management of the business, thereby protecting the interests of the remaining owners and the business itself. The purpose of a disability buy-sell agreement is to create a pre-established plan that dictates how the business interest of the disabled or deceased owner will be valued and sold, as well as to whom it will be sold. This ensures that the business can continue to operate without disruption and that the financial interests of all parties are safeguarded. In contrast, a partnership dissolution refers to the end of a partnership due to various reasons, including the death or disability of a partner, but it does not explicitly address the transfer of ownership stakes as comprehensively as a buy-sell agreement does. A business succession plan is a broader term that encompasses various strategies for transitioning ownership or management without specifically detailing the financial arrangements for a buy-sell scenario. Lastly, a life estate agreement pertains to real estate ownership and does not apply to business ownership transfer. Overall, the disability buy-sell agreement is essential for ensuring that a business can be effectively and fairly