Buy Sell Agreements
How Fresh Legal Perspective Can Help
They say that the only things certain in life are death and taxes. So if you are involved in a partnership, a small corporation with a group of shareholders, or a multi-member limited liability company, what will happen to ownership interests when one of the members dies, gets divorces, becomes disabled, or declares bankruptcy? Or what happens to ownership interests if one of the partners simply wants to retire? How will the company pay for the departing partner’s equity in the company?
A carefully crafted Buy-Sell Agreement protects both the company and its owners in the event of conceivable changes in the ownership of the business. Drafting and negotiating a buy-sell agreement as a team creates clear and realistic terms of how and when a departing partner receives his or her fair share of the business. Preparing in advance for these inevitable changes and potential problems prevents future disagreements and interruptions in the operation and prosperity of the company and empowers the owners to make their own decisions and control the future of the business as much as possible.
While it is best practice to create and agree to a Buy-Sell Agreement before the business is formed, these agreements can be executed at any time through the life of the business as long as all interested parties can agree on the terms.
To take control of your business’s future, contact Fresh Legal Perspective today to schedule a consultation and learn more about how a Buy-Sell Agreement may benefit you.
What Types of Buy-Sell Agreements are Most Common?
The two most common forms of buy-sell agreements are cross purchase plans and repurchase plans. Both forms of agreements are legally binding contracts that detail who can buy the departing owner’s portion of the business, what will be the compensation formula for that individual’s portion of the business, and what incidents will activate the buy-sell agreement provisions, such as disability, retirement, divorce, and death. However, the two types of plans differ slightly in how they are structured.
In a cross purchase agreement, the remaining owners of the business have the option of purchasing the ownership percentage of the departing owner. For example, if one owner passes away, the buy-sell agreement in a cross purchase agreement should allow for the other owners to buy the deceased owner’s share of the business, usually according to a formula in the agreement. The proceeds of the purchase can then go to the decedent’s estate while ownership of the business is retained amongst the surviving owners.
In a repurchase plan agreement, instead of the remaining owners purchasing the ownership percentage of the deceased owner, the business itself would purchase the ownership percentage of the deceased owner and the deceased’s estate would receive funds from the business instead of the individual surviving owners.
This portion of the site is for informational purposes only. The content is not legal advice.
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