What is a buy-sell agreement?
If you are starting up a business, you will be starting it with other people as partners or shareholders (unless you are a sole proprietor/sole owner). Starting a business is exciting. When you are working with others for the same goal, there can be a real team atmosphere, with everyone pulling for each other and pitching in.
Unfortunately, for too many startups, that team atmosphere can easily break down over time. Many partnerships and closely held corporations break up due to disagreements, retirement, the disability or death of a party, or perhaps a party has just lost interest and wants to do something else.
Buy-sell agreements are valuable for any type of business. If there is irreconcilable fighting by family members, co-owners or spouses, this kind of agreement can provide a means for one side to buy the other side's interest in the business and make a clean break. This can keep the business going with its goodwill and operations intact.
Buy-sell agreements come with many options,
• A cross purchase happens when one partner or shareholder sells to another.
• A redemption agreement involves the business making the purchase and the cost is not born by the individual owners.
• In the case of a party dying, life insurance proceeds could be used to buy out the estate’s share of the business.
• The price could be fixed, decided by an appraisal or by an agreed-upon formula.
• The price could be paid in cash or in installments over time.
• Different terms could cover different events (one price and terms for retirement, others for disability or death).
Putting together a buy-sell agreement forces the parties to plan ahead and consider the "what ifs" should there be an unfortunate turn of events. No one can foresee the future, but with a buy-sell agreement you can plan for an uncertain future and give your business a greater chance of long-term success.
Even if you already have a buy-sell agreement, it is important to review it periodically to make sure that it still works in the manner you remember. Over time and as the business grows, it may be necessary to amend the terms or add new language to reflect the current state of the business and relationship between the owners. In short, it is recommended that you perform a "fire drill" to test the provisions in your existing buy-sell agreement so that you are certain that it will accomplish your goals if / when the "real thing" happens.
To learn how a buy-sell agreement can work for your business, call Las Vegas, Nevada business law attorney Craig Stone at (877)905-0890. He has more than 20 years of experience advising clients who are buying a business, selling a business, and handling every phase of business planning in between.