Business owners use contracts to memorialize agreements in a legally-binding, written form. Many of the contracts are with people outside the company, like customers or vendors. However, one of the most important agreements – the buy-sell – is for internal use. In this article, we will look at how to prepare a buy-sell agreement.
Talk to Your Business Lawyer to Prepare a Buy-Sell Agreement
Contract law is complicated, and buy-sell agreements are no exception. Seemingly innocent language could have serious implications for your business. Always have your attorney or corporate counsel draft legal documents for you or at least review agreements before you sign them.
Why is it so critical to prepare a buy-sell agreement for your business? Because this legally-binding document governs what your company will do if one of the owners leaves the business, whether because of divorce, disability, death, or another reason. For example, a business partner might pass away. His or her business interest could now become part of the estate. Your former partner’s heir could inherit the business interest and have the right to participate in the company’s operations and management. This may or may not be a good idea. Your buy-sell agreement can help prevent this type of situation from occurring.
The buy-sell agreement might bind the remaining co-owners or the business itself to buy-out the departing owner’s business interest. Your attorney can advise which course might be best for your company. First, you and your partners need to be on the same page.
Discuss the Buy-Sell Agreement with Your Co-Owners
As you begin to prepare your buy-sell agreement, you and your co-owners should discuss the terms and provisions to include in the document. Often, buy-sells are negotiated as a company is being formed, and this is usually considered the best time to tackle this task.
However, it’s never too late to prepare a buy-sell agreement. Your company’s future could depend on it.
Choose the Type of Buy-Sell Agreement That Best Suits Your Purposes
At some point in your discussions, you will choose what kind of buy-sell agreement you need. There are two basic types from which to choose:
- Cross-purchase, where the remaining owners buy the departing owner’s business interest; and
- Redemption, where the company buys the available share.
Your company might also consider a hybrid arrangement that combines the most appropriate terms from each basic type.
Hire a Qualified Business Lawyer to Prepare a Buy-Sell Agreement for Your Company
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.