Any business owner knows that it is impossible to predict and plan for the countless challenges that can arise to threaten a business’s health. Fortunately, there are some tools – such as buy sell agreements – that can save you and your fellow owners a considerable amount of grief and contention, and can even help to minimize the odds of costly litigation.
What a buy sell agreement does
You and each of your business partners has a certain amount of ownership interest in your company. A properly executed buy sell agreement governs the terms of the company’s obligation to buy out the ownership interest of an owner when they withdraw from the company due to death, retirement or other circumstances.
In the event of death, the value of the deceased owner’s interest is paid to their estate, where it can be distributed to their beneficiaries in accordance with their estate plan.
A buy sell agreement is often part of a partnership agreement that business partners execute as part of the founding of their company, but it doesn’t have to be. You can also execute a buy sell agreement as a separate contract at any point after your business is up and running.
Protecting your business
Buy sell agreements are highly customizable. With time and care, you can craft your buy sell agreement to cover a wide variety of circumstances, in order to offer the highest degree of protection possible for the business that you are putting so much time and effort into building.
For example, occasionally businesses will face challenges when one of the owners gets a divorce. The divorcing owner’s spouse could fight for their fair share of their spouse’s ownership interest in the company in the asset division portion of the divorce process. In situations like these, a carefully worded buy sell agreement could force the owner to sell their interests before their divorce so that the other partners can maintain exclusive control of the company.
When it comes to business planning, a little bit of preparation and foresight can go a long way towards heading off problems before they arise. For the good of your company, make sure that you and your partners negotiate a buy sell agreement as soon as possible.
