What Are Five Things Every Buy-Sell Agreement Should Contain?
If you own a business, you need to be prepared for everything. This includes the possibility that you or one of your partners dies, retires, or unexpectedly leaves your company. Without proper preparation, any of these scenarios could have dire repercussions for your business.
The ideal way to prepare for situations like these is to have a buy-sell agreement in place ahead of time. And to minimize the chance of issues with the agreement that could hurt you or your company, you’ll want help from a knowledgeable business lawyer.
The Gastonia business attorneys at Mullen, Holland & Cooper have been helping companies draft buy-sell agreements and navigate other business issues for more than 50 years. We’ve received extensive recognition for the quality of our services, including an AV Preeminent ranking from the ratings agency Martindale-Hubbell. Contact us today to set up your initial consultation.
What Is a Buy-Sell Agreement?
A buy-sell agreement is a document between two or more business partners outlining what will happen to each partner’s business interest if a partner unexpectedly leaves the company. Having an agreement in place ahead of time can prevent ugly disputes between partners and any disruptions to the business with the loss of a partner.
Buy-sell agreements generally include provisions for a wide range of scenarios, such as:
- A partner is terminated or forced out
- A partner resigns
- A partner retires
- A partner suffers a permanent disability
- A partner gets a divorce (as their business interest could be a shared marital asset)
- A partner files for bankruptcy
- A partner dies
Without a buy-sell agreement in place before any of these scenarios, your business could be in big trouble. For example, if a partner gets divorced, their interest in your business could wind up in the hands of the partner’s former spouse. This could create all kinds of issues for your business. With a buy-sell agreement, you can be prepared for this scenario and have a remedy already in place.
Similar issues could arise if one of your partners has to file for bankruptcy. Their interest in your business could be seized as an asset by the partner’s creditors, putting a potentially hostile third party in partial control of your company. This is a situation you want to avoid at all costs. But a buy-sell agreement could prevent any issues by stipulating that you or your other partners will buy out the interest of any partner who files for bankruptcy.
Five Things Every Buy-Sell Agreement Must Have
There are five key elements of every buy-sell agreement. They are:
- A list of buyout conditions that could trigger the agreement (divorce, bankruptcy, death, etc)
- A structure for the partners to buy or sell their interest in the business
- A recent valuation of the company
- Sources of funding for any purchase or sale of a partner’s business interest
- Possible tax considerations regarding the purchase or sale of any partner’s business interest
Without all these essential elements, a buy-sell agreement won’t account for the possible issues your company could face. A business lawyer can draft and review a buy-sell agreement to help protect your interests and the overall health of your business.
How a Lawyer Could Help
Buy-sell agreements need to account for a wide range of possibilities, and any mistake in the document could cause you major headaches at a later date. By hiring a lawyer to help you draft a buy-sell agreement, you’ll have someone who can help protect your interest in the business and minimize any potential hassles if a partner leaves. An attorney can also help make sure your buy-sell agreement complies with the relevant laws that affect your business.
Drafting and reviewing buy-sell agreements are common services we offer at Mullen, Holland & Cooper, and we would be happy to assist you with creating an agreement for your business. Contact our office to speak to one of our attorneys.