Owning a business means understanding that you will not always be around to run the company. The time may come when you choose to retire, or you may suffer from a disabling event in the future or pass away, any of which will make it impossible for you to continue owning and operating the company.
Because such possibilities exist, having a buy-sell agreement in place could greatly benefit your business. This document would allow you to have arrangements in place for the continuation of the business in the event of your retirement, disability, passing or other event that prevents you from moving forward with the company.
The buying parties
When it comes to buy-sell agreements, business owners typically utilize one of four types of arrangements. Those agreements include the following:
- Selling the company to the company itself
- Selling the company to an outside third party
- Selling the company to its remaining owners
- Selling the company to multiple individuals including owners and non-owners
Often, remaining owners may purchase the stock of the deceased or otherwise withdrawn shareholder, or the company itself may reintegrate those interests.
The agreement terms
Buy-sell agreements can include a variety of information. The terms would include the parties involved in the transaction, the company’s purchase price, funding arrangements and other details. The agreement could also include information on how the transaction should be handled in the event that the business itself cannot purchase the interest.
Enforcing the agreement
Having this type of agreement in place before you need it could prevent confusion and costly time in the future. However, you would need to include stipulations as to when the agreement would go into effect. Typically, buy-sell agreements are enforced when a shareholder dies, retires or suffers from a disability. The agreement can include other possibilities as well, such as if a shareholder goes through divorce or files for bankruptcy.
Creating the agreement
If you believe that it would benefit your company to prepare for the future and create a buy-sell agreement, you may want to make sure that you create a legally-binding and lawful agreement. Because this agreement acts as a type of contract, you do not want any errors to potentially affect its enforceability in a negative way. Fortunately, a business attorney can help you understand this document and assist you in determining what terms may best suit your interests and the interests of your company.