If you own a business, you need to have a comprehensive buy and sell agreement in place. A buy and sell agreement details what happens if one of the company’s partners passes away or leaves the business.
Working with a skilled business attorney to craft a thorough, legally binding buy and sell agreement is essential to facilitating a smooth transition of power if a shift occurs in the ownership of your business.
What is a Buy/Sell Agreement?
A buy and sell agreement is a legal contract detailing what is to occur when a business owner dies or leaves the company. The agreement (sometimes called a buyout agreement, a buy-sell agreement, or a business will) outlines how the partner’s share or shares are reassigned in the event of their retirement, death, or departure from their ownership position.
What Does a Buy/Sell Agreement Do?
Typically, a buy/sell agreement dictates that the business share is to be sold at a predetermined rate to the company or its remaining shareholders. If the owner passes away, leaving their share to their estate, a buy/sell agreement can dictate that the estate must sell the share back to the company.
A buy/sell agreement prevents anyone from unfairly profiting from the departure of an owner and ensures that the business is not sold to outside investors or liquidated by one party.
These agreements also stipulate how to value the owner’s share of the business. The contract may include a formula for calculating how much the share or entire business is worth, mitigating potential disputes among remaining members.
Why is a Buy/Sell Agreement Necessary?
A buy/sell agreement is necessary for most businesses because it mitigates potential disagreements and legal battles regarding the former owner’s share of the company. A well-structured agreement also:
- Keeps the business running, creating job stability for owners and employees
- Prevents unnecessary and costly lawsuits or business mediation sessions
- Ensures the surviving beneficiaries are compensated for the owner’s share
- Sets a value for the business share, eliminating contradicting valuations
Protect Your Business’s Future with a Buy/Sell Agreement
If your business is newly formed or you don’t have a buy/sell agreement for your current company, speak with a business attorney from Anzen Legal Group today. We have extensive experience with business law and can help you craft a buy/sell agreement that protects your company and ensures a smooth transfer if something happens to you or your business partners.