Implementing buy-sell agreements can help ensure that your business continues to operate in the event of your retirement, death, or incapacitation.
Most of the time, buy-sell agreements are used for small business partnerships but there are instances where buy-sell agreements are implemented for larger enterprises.
What are buy-sell agreements?
In a nutshell, a buy-sell agreement ensures that a business partner can absorb control of a business in the event of another partner’s involuntary or voluntary exit.
Examples of involuntary exists include:
- Forced buy-outs,
Voluntary exists involve retirement and other reasons for stepping down from leadership roles.
Buy-sell agreements protect more than remaining business partners: these agreements can also make provisions to provide the exiting partner’s family with the value of the business that they are legally entitled to.
There are a multitude of ways that a buy-sell agreement can be structured. When it comes to small business partnerships, one of the most common methods of ensuring a business’ continued operation is a “cross purchase buy-sell agreement.”
These types of agreements involve taking out life insurance policies on each partner. Once the life insurance is paid out, the remaining partner can use those funds to buy their partner’s share of the business from their heirs.
While this type of buy-sell agreement can work for a variety of business partners, it is best to consult with an experienced attorney to develop an agreement that meets your business’ unique needs.
Can a buy-sell agreement prevent the sale of a business to an outside investor?
Yes, a buy-sell agreement can implement provisions that prevent an outsider’s takeover of an enterprise.
Examples of this include stipulating that an existing partner’s ownership be bought back by remaining partners or that outside investors purchasing shares of a business must be approved by remaining owners. These types of stipulations can eliminate the threat of outside takeovers.
How can a business attorney help me with a buy-sell agreement?
Buy-sell agreements can become complicated when it comes to determining the value of a business and when considering the entities that may have legal rights to your business in the event of a partner’s voluntary or involuntary exit.
One of the most important aspects of developing an effective buy-sell agreement is to have an experienced business attorney draft it. These types of attorneys have an intricate understanding of the law and the nuances of legal language specifically related to your type of business. The more specific and clear your agreement is, the better chance you have of maintaining a viable business after losing a business partner.
An attorney can also help you anticipate factors that may challenge your buy-sell agreement such as heirs attempting to sell their shares of your business to outsiders or a lack of funds to buy out your business partner. Experienced business lawyers can ensure that your interests and the succession of your business is protected under the fullest extent of the law.
Schedule a Consultation with Generations Law Group
Based in Boise, Idaho, Generations Law Group provides counsel to small business owners. Our firm helps develop succession strategies, drafts contracts, facilitates business transactions, and litigates business disputes. Our mission is to protect our clients’ financial interests with client-forward service. If you’re interested in protecting your legacy with buy-sell agreements, contact us to schedule a consultation.