If a business has multiple owners, eventually a change in ownership will need to happen. An owner will retire or move on for another reason. Don’t forget that emergencies can also happen. Changing ownership doesn’t need to be complicated. Planning ahead will help dispel disaster when the time comes for a transition. The plan for that time should include a buy-sell agreement. A proper buy-sell agreement enables a smooth transition for the departing owner, the remaining owner, and the business operations.
What is a Buy-Sell Agreement?
Sometimes referred to as a buyout agreement, a buy-sell agreement is a contract between the owners of a business that controls the purchase and sale of ownership interests in the business. Specifically, it determines when owners can or must sell their interests, who can buy an owner’s interest, and how the price for that interest will be determined. A buy-sell agreement is often compared to a prenuptial agreement in that it specifies how the owners will separate their interests in the event of a separation or “divorce”. Typically it will come into play in the event of a death, retirement, incapacitation, or other instances in which an owner is leaving the business.
Who Needs a Buy-Sell Agreement?
Every privately-held business with one or more co-owners should have a buy-sell agreement. This is true whether the business is organized as a corporation, limited liability company, partnership, or joint venture. Even if the business is owned with a spouse or child, the agreement will address the possibility of or a co-owner departure.
A buy-sell agreement can also ensure that a solely-owned business passes to a key employee or particular member of the family upon departure of the owner without other family members or employees being able to interfere.
Not sure where to start with your buy-sell agreement? Let us help. Whether starting from scratch or updating an old plan, contact us and let us guide you through the process. Protecting your business with a buy-sell agreement keeps all owners of the business protected and keeps operations running smoothly if something happens to an owner.
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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.