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.