Starting a business is a very involved process. You must decide what type of entity and structure you want to follow as well as figure out where revenue will come from to pay for potential employees. With all the details that need to be worked out it is easy to overlook one vital detail—a buy-sell agreement. This agreement is a legally-binding contract between the owners of a business that dictates what will happen if one owner dies or wishes to leave the company.
When a business is managed by more than one individual there are a number of problems that can arise. In some situations, one partner or stockholder will want to exit the business. The problem comes when all the owners cannot agree on the terms of the exit. If this happens, the company will be sold. If a partner or stockholder dies, the business might have to be dissolved or sold if the management cannot be agreed upon in the aftermath. The same situation could occur if one partner becomes disabled or in any way unable to manage the business. If one of the partners is involved in some sort of legal dispute, the operation of the business may come under scrutiny as well.
These problems can be easily resolved before they even begin. A buy-sell agreement will eliminate transitional glitches and difficulties. This agreement—also called a business continuity agreement—is a document that lays out exactly how the above situations will be handled. It will determine who can buy the share of the business that formerly belonged to the partner who is exiting the company. It describes the specific events that can lead to a buyout—often these events will be death, retirement or a permanent disability. The document will lay out what price can be paid for the partner’s interest. The agreement can keep a company alive that would otherwise dissolve. It is often thought of as a will.
Do I really need this document?
Running a business is a high-stress and highly involved responsibility. There is a lot on the line and a lot of money is tied up in the success of the company. If you are wondering whether or not you really need to write up such an agreement, you should consider the importance of the continuation of your business. This simple document could help your company weather the difficulties of a major leadership transition as well as any leadership disputes that might arise. It can be a valuable tool for stepping back and analyzing the nature of your company. When you are ready to enter into this agreement, you should acquire the help and guidance of a legal professional. An experienced business law attorney can help mediate the agreement process and advice the partners on the best way to write up such a document. If you are looking for an attorney to aid you, work with Crary Buchanan.