Buy-sell agreements are like prenuptial agreements for people in business together; Buy-sell agreements set forth what is going to happen when things go wrong and business partners want to, or have to, separate. As with prenuptial agreements, people tend to overlook their importance or simply don’t want to deal with the subject; after all, they are in love!
But as Iowa business attorney Rush Nigut points out in his most recent post:
"The time to enter into a buy-sell agreement is at the beginning of
the business relationship when everyone is excited and getting along.
It is often very difficult to negotiate a deal when something has gone
wrong. Without a buy-sell agreement, owners may end up in court and
the business may suffer."
A buy-sell agreement can stand on its own or be a set of provisions in another agreement, such as a shareholder agreement, operating agreement or partnership agreement.
A buy-sell agreement usually covers the following issues:
Right of First Refusal
If an owner wants to leave, does he have to sell his interest to the remaining owners before selling to an outside party?
How to Value the Business
If there is a sale of an owner’s interest, how is the value of the interest to be determined?
Payment in case of a sale of an interest
If there is a sale of an owner’s interest, is the purchase price to be paid in installments? with interest? or in a lump sum?
Death, Disability, Divorce, Retirement of an Owner
What is going to happen in case of death, disability, divorce or retirement of an owner?
Related Post: Going into Business Together – Don’t Rely on a Handshake
If you need help in preparing a buy-sell agreement, you should contact a licensed attorney in your area.