buy sell agreements

Buy-Sell Agreements

A concern of many businesses that have more than one owner is what will happen if one of them can no longer continue working. The remaining owners generally want to ensure the departing owner’s family does not interfere with the day-to-day business operations and long-term planning. The remaining owners also do not want to compromise the cash flow needs of the business by having to fund a significant buyout. Of course, the departing owner generally desires that they and their families be compensated fairly for their share of the business.

If you own less than 100% of a business and want to sell, finding a willing buyer to purchase your shares may not be possible. This situation sometimes results in litigation, and will always negatively affect the businesses profitability. In any event, all of the parties involved have something to lose.

A Buy-Sell Agreement will identify specific events that may give rise to a buy-out. Common events that trigger the need or desire for a buyout are death, disability, divorce, bankruptcy, or retirement. Other times, one owner simply wants to get out for personal reasons. Each event must be dealt with in a different manner.

A good Buy-Sell will provide guidelines to handle each event, including establishing a method for determining the price, and the timing and terms for the buy-out. Most Buy-Sell Agreements have arbitration clauses that minimize the cost of settling disputes. Other provisions include non-competition clauses for departing owners and sometime a mechanism for terminating the Buy-Sell Agreement itself.

A Buy-Sell will also specifically address unique issues that arise when the owners of a business differ significantly in age and the impact that such age differences have on the life cycle of the business. For example, younger owners are less likely to die, but more likely to become divorced or want to move on. Older owners are closer to retirement, or at least closer to the age of desiring to work less, and younger owners are at a stage in life where they desire (and need) to work more. A well-drafted Agreement will take these differences into account and deal with them in practical ways.

Executing a carefully planned Buy-Sell Agreement can assure owners in a closely held business that their interest in the business is secure regardless of any unforeseen circumstances. In many cases, this can be accomplished without placing excessive strain on the business cash flow, ensuring that the business and its remaining owners continue to succeed.

You need competent and experienced legal counsel to draft a Buy-Sell Agreement and advise each owner regarding his or her individual interests. You can be confident that any Buy-Sell Agreement we draft for you is based on experience and an intense attention to the details of your particular situation.

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