A business partnership is often compared to a marriage You are working together to build a successful business and business relationship. There are moments when you are in sync and there are moments of discord and tension. Sometimes business partnerships go the distance and sometimes they dissolve. Much like prenuptial agreements set the terms of divorce should a couple seek a dissolution of the marriage so buy-sell agreements set the term should a partnership rift necessitate a restructure of a company’s leadership team. Regardless of whether your business is new or established, small or large, having a buy-sell agreement in place can be important for a number of reasons.
Why You Should Have A Buy-Sell Agreement
A buy-sell agreement is also commonly referred to as a “buyout agreement.” Such an agreement dictates the terms should a partner need or want to exit a business. The terms will income what will happen to the partner’s shares in the company. How will they be sold? Who can buy them? What will the share price be? To help ensure that the company has the resources available to it for the purchase of a partner’s shares, buy-sell agreements will commonly include a funding provision, such as an insurance policy. Furthermore, buy-sell agreements often have provisions which seek to limit the personal risk to each business partner by shifting the risk to the business itself.
Putting a buy-sell agreement in place is a great way to set your business up for continued to success by preparing it for how to weather certain storms that can roll through. Change in business leadership can have a huge impact on a business. If a partner were to leave, pass away, or be otherwise unable to or unwilling to remain as a business owner, the transition period could ruin a company that is unprepared for such an event.
The buy-sell agreement can clearly set forth what will happen in the event that a partner exits a business, for whatever reason. It can minimize and nearly eliminate any conflict that may arise as to who has rights to the departing partners shares. It can also help ensure that the business has enough funds to buy out the departing owner’s shares. In the absence of a buy-sell agreement with a funding provision, a company may be at great risk of dissolution or liquidation.
Business Law Attorneys
A buy-sell agreement can help protect you as a partner and can also help ensure that your business weathers the critical transition period after a partner leaves. Get the peace of mind that comes with putting strong legal tools in place to protect your business. The team at Jones, Gregg, Creehan & Gerace can draft a buy-sell agreement that helps set your business up for continued success far into the future. Do not hesitate to reach out to our office for assistance. Contact us today.