Even in the best of times, we cannot predict the future. As a business owner, you may be dealing with financial problems, business lawsuits, contract disputes, and disgruntled customers on a daily basis. However, other problems are internal. Some are solved by having good legal documents in place. For example, companies with more than one owner should plan how to handle the loss of an owner. A buy-sell agreement typically provides the guidance you need, but you may be wondering now whether COVID-19 will trigger your buy-sell agreement.
This article will give you a general idea of how this type of agreement works. However, every situation is a little different, so consult with an experienced Florida business lawyer for specific advice before signing your buy-sell agreement or triggering it.
Basics Behind a Buy-Sell Agreement
This type of contract is common when a business has more than one owner. The purpose of this agreement is to state how a partner’s share will be handled if the partner leaves the business for any reason.
A buy-sell agreement generally takes the form of a:
- Cross-purchase agreement. The remaining owners buy the departing owner’s share of the business.
- Redemption agreement. The business itself purchases the departing owner’s share.
- Combination of the two. The business and remaining partners may each buy part of the available interest.
Either way, your agreement makes it far less likely that a vengeful ex-spouse, successful litigant, or wayward child will be helping operate your company.
Triggers in Your Buy-Sell Agreement
Sometimes agreements are prompted by a certain event. In this case, the agreement may take effect upon events like the following:
- Illness, incapacity, or death of an owner.
- Termination of an owner who also works for the company.
- An owner files for bankruptcy.
- Retirement or divorce of an owner.
The current public health emergency could make certain adverse situations like the ones mentioned above more likely.
COVID-19’s Potential Effect
Because of government shutdowns and the general condition of the business world, your buy-sell agreement may be affected in one or more of the following ways:
- Your business may have lost value, which could affect your willingness to remain an owner. On the other hand, you may want to hang on to see if the value of your business interest rebounds.
- One or more owners may be forced to file personal bankruptcy due to coronavirus-related losses. Your buy-sell agreement should protect your business interest from creditors. However, you may need capital to buyout the bankruptcy co-owner.
- One of your co-owners could die or become incapacitated because of COVID-19. Typically, this will trigger the provisions of your agreement. However, as mentioned above, you need capital. If your company has suffered business losses, buying out a departing owner’s interest may be difficult or impossible.
In any event, your buy-sell agreement should guide you and your partners through this challenging time.
Will Your Buy-Sell Agreement Survive COVID-19?
Without a buy-sell agreement, your company remains vulnerable to the changes we often see in life. The COVID-19 crisis may affect you and your business partners, but a buy-sell agreement may help you avoid serious trouble.
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. From our Coral Springs office, we represent clients throughout the State of Florida.