Buy Sell Agreement Basics

When running a business with a partner, it`s important to have a plan in case one of you wants to sell their share or pass away unexpectedly. This is where a buy sell agreement comes in. In this article, we`ll go over the basics of a buy sell agreement and why it`s important for your business.

What is a buy sell agreement?

A buy sell agreement, also known as a buyout agreement or a business will, is a legal contract that outlines what happens in the event that one of the owners of a business wants to sell their share. It also covers what happens if one of the owners passes away or becomes disabled and can no longer participate in the business.

Why is a buy sell agreement important?

A buy sell agreement protects the interests of both parties involved in the business. It ensures that the remaining owner(s) of the business have the first option to buy out the departing owner`s share. This prevents outside parties from coming in and taking over the business, which could negatively affect the remaining owner(s).

Additionally, a buy sell agreement can prevent disputes among the owners and their families in case of unexpected events, such as death or disability. The agreement sets a fair price for the departing owner`s share and outlines how it will be paid out. This can prevent disagreements and legal battles down the line.

What should be included in a buy sell agreement?

A buy sell agreement should include the following:

– The circumstances under which the agreement will be triggered (e.g. death, disability, retirement, voluntary departure)

– The price and terms of payment for the departing owner`s share

– Who has the right of first refusal to buy the departing owner`s share

– How the valuation of the business will be determined

– What happens if the remaining owner(s) cannot or do not want to buy out the departing owner`s share

– Any restrictions on who can buy an ownership share in the business

– A provision for updating the agreement as the business evolves and changes ownership

Conclusion

A buy sell agreement is a necessary document for any business with multiple owners. It protects the interests of all parties involved and ensures that the business can continue running smoothly in the event of unexpected events. If you don`t currently have a buy sell agreement for your business, it`s important to speak with a lawyer to create one.

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