No matter what the set up of the ownership of the business is, at some point it’s inevitable that an owner will leave. Retiring, changing careers, emergencies, or death, are all events to be prepared for. Having a plan ahead of time will keep operations running smoothly and keep every shareholder protected. A buy-sell agreement is the best plan for your business if there are multiple owners involved. A proper buy-sell agreement protects all involved and enables a smooth transition for the departing owner, the remaining owner(s), and the business operations. 

If you are a shareholder in a business, here are the main reasons to have a buy-sell agreement…

To control who can own an interest in the business. 

A buy-sell agreement can allow business owners to agree on an owner’s successor when the owner retires, dies, or becomes disabled. The heir to the estate may not be the right person to take over the business. Perhaps the family member has another occupation, is unfit to manage the business, or does not want the responsibilities of running a business. A buy-sell agreement protects the remaining owners right to purchase the departing co-owner’s share so that the surviving co-owners can retain control of the business. As much as the buy-sell agreement can keep the family business “in the family,” it can also help keep your business interest outside of the family or your co- owner’s family, a sometimes more desirable outcome. 

To protect the rights of the departing owner. 

A buy-sell agreement can ensure that the departing owner has a purchaser for his or her interest, the price will be fair, and a mechanism to fund the purchase is in place. This is most helpful if the departing owner is counting on funds from the sale of their shares for retirement or another business venture.

To remove the lingering influence of a disgruntled owner. 

Sometimes the business partnership can be strained from contrasting business philosophies. To avoid this scenario, a buy-sell agreement can provide for a buyout of the unhappy owner at a fair price. Business isn’t easy and when it comes to disputes between owners, it’s best to have a plan upfront that will help navigate what to do if this becomes an issue. 

To deter conflicts among the owners and reduce the risk of litigation with its accompanying expense. 

Much like a divorce, the buyout of a co-owner can be a highly emotional situation. A buy-sell agreement can more than pay for itself if it eliminates a legal dispute upon a co- owner leaving the business.

Not sure where to start with a buy-sell agreement? If you live in Illinois or Wisconsin, we are here to help. Contact us and let us help you figure out the best path for your business. 

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Disclaimer: This article is intended to serve as a general summary of the issues outlined therein. While this article may include general guidance, it is not intended as, nor is a substitute for, qualified legal advice. Your review or receipt of this article by Lexern Law Offices, Ltd. (the “LLG”) or any of its attorneys does not create an attorney-client relationship between you and the LLG. The opinions expressed in this article are those of the authors of the article and does not reflect the opinion of the LLG.