Quick Guide: The 3 W’s of Buy-Sell Agreements

buy-sell agreements

As a business owner, you want to ensure you have all your bases covered to allow your business to thrive and survive. Have you ever considered the repercussions of a partnership dissolution, co-owner dispute, or unexpected death on the future of your business?

No matter what type of business entity you own, this quick guide will introduce you to Buy-Sell Agreements and outline why such agreements are important to you and the longevity of your business.

Quick Guide: Buy-Sell Agreements

Part 1: The 3 W’s of Buy-Sell Agreements

What is a Buy-Sell Agreement?

  • A contract between co-owners of a business that governs what happens if a co-owner dies, is otherwise forced to leave the business (e.g. disablement), or chooses to leave the business (e.g. retirement).
  • Requires someone to buy and another person to sell their share/stock for a given price if/when a triggering event occurs.
  • It is used by any business entity, including sole-proprietorships, partnerships, and closed corporations, to divide the business share/interest of the departing proprietor, partner, or shareholder.

Why should I have a Buy-Sell Agreement?

  • Helps avoid infighting between family members, co-owners and spouses (especially in the event of a divorce).
  • Allows entrepreneurs to know who can buy into a business from the outset.
  • Formally outlines the transition process (transfer of ownership and control following a triggering event).
  • Avoids potential business disruptions and loss of value to the business.
  • Avoids expensive litigation down the line if a dispute does arise.
  • Buy-Sell Agreements are reciprocal (applicable to all owners).

When should I create a Buy-Sell Agreement?

  • It is never too early to put a Buy-Sell Agreement together.
  • Business owners should collaboratively define an exit strategy and ownership succession plan in case one or more owners leave the business unexpectedly.

To learn more about Buy-Sell Agreements and how they can improve your business, read Part 2 in this Quick Guide series, The Essentials of Buy-Sell Agreements, as well as Part 3, Company Value and other Elements of a Buy-Sell Agreement. Read more about our Business Law services and contact our experienced team today for more information.

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