Rick, Elaine, and George had no trouble starting their business and getting it off the ground. The business was booming, and the partners collaborated well on almost everything. Then one day, someone asked if they had signed a buy-sell agreement when they formed their business. Unfortunately, they had no idea what a buy-sell agreement was and why their company would need one. Their Florida business lawyer or corporate counsel could answer their questions and prepare this vital business document for them.
You may be wondering now whether your business needs a buy-sell. Consider the following questions.
Does your company have more than one owner?
Just about every company with more than one owner needs a buy-sell agreement. That’s because of the document’s unique purpose:
To stipulate “how a partner’s share of a business may be reassigned if that partner dies or otherwise leaves the business.”
The departure of a business partner – especially if there was no warning – can wreak havoc on a company. Customers and clients may be neglected while employees, management and remaining partners figure out what to do.
By the way, companies with a sole owner still need to consider what will happen if the owner experiences any of the triggering events, which include incapacity, divorce, bankruptcy, death. However, your Florida business lawyer can advise how to properly protect your business interests.
Could one or more of your business partners exit the business at some point?
Unless your business partners are immortal, death is always a possibility. However, there are other ways a partner’s business interests could be endangered, including:
- Incapacity,
- Divorce,
- Bankruptcy, and
- Retirement.
Without a clear exit plan, the entire company could become mired in probate, bankruptcy proceedings, or business litigation.
A buy-sell agreement serves as an exit plan.
Will a buy-sell agreement help secure your company’s future?
In some respects, the answer is yes. A buy-sell agreement can’t guarantee that your company’s future is secure. However, it can certainly help with the potential business-interrupting chaos that could erupt when an owner leaves.
Your company can choose from several types of buy-sell agreements, like:
- Cross-purchase agreements. When one partner leaves, the remaining partners purchase the departing owner’s business interest.
- Entity purchase agreement. The company itself buys the shares of any deceased or otherwise departing owners. However, state laws vary on this issue, so be sure to discuss a buy-sell agreement with an attorney in your state.
- Hybrid buy-sell agreements. Some agreements contain elements of both cross-purchase and entity purchase agreements.
Buy-sell agreements also offer other provisions that could make transitions easier. At the very least, the following provisions could provide some guidance to your remaining partners:
- Right of first refusal. One or more parties have the right to match any other offers.
- Right of first offer. Certain parties, probably the remaining business owners, reserve the right to buy before anyone else. Sometimes these provisions contain a time limit.
- Funding. The company or remaining partners will need available funds to buy out the departing partner’s interests.
If you co-own a business, we strongly encourage you to have a robust buy-sell agreement in place.
Call to Discuss Your Buy-Sell Agreement
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.