Everybody wears rose-colored glasses at the outset of a new business. It can be uncomfortable to talk about what happens if things don’t work out between partners, but the world is an uncertain place. In fact, one of the few things you can rely on is that handling a breakup in real-time is orders of magnitude harder than talking it out at the beginning.
A good buy-sell agreement functions to effectively protect the company and each partner from turning the disputes and hardships that will undoubtedly arise during the life of a business into the death-knell of the company. Partnerships, like romantic relationships, can quickly crumble if someone is disloyal or is not properly invested in the relationship, or, to be morbid, if someone dies or becomes disabled. A strong buy-sell agreement will clearly define what happens to a partner’s interest in these scenarios. A good business attorney can help you to structure a buy-sell agreement that is both fair to all parties involved and also clearly defines succession rights. After all, it is difficult enough to continue running a business when a partner has left. It becomes even harder to do so if the the remaining partner(s) has to focus a substantial amount of energy on negotiating succession terms with a withdrawing partner or his or her heirs. So, business partners should seriously consider including a buy-sell agreement at the outset of the venture. In most cases, a buy-sell agreement doesn’t even have to stand alone – it can frequently be included in an operating agreement or a shareholder’s agreement.
Some of the most common elements of a buy-sell agreement include a listing of the actions that trigger the buy-sell provisions, language regarding who has the right (or obligation) to purchase the shares or other ownership rights of the partner who has passed away or is leaving the business, how the purchase the price for those shares or rights is determined, and any exceptions to the general rules of the buy-sell provisions. A buy-sell agreement might also contemplate the purchase of key-person life insurance policies and should be tailored to the specific business it is intended to protect
If you would like to speak with the attorneys at Fourscore Business Law about creating a buy-sell agreement for your business, please click here. For more in-depth information on buy-sell agreements, please click here.