Whether you’re going into business with your best friend, your parent, your sibling or just somebody you know, you need a contract – and a key feature of that contract should be a buy-sell agreement.
A buy-sell agreement is basically a plan for handling various situations that can trigger a business partner’s exit, such as their death, long-term disability or retirement. In essence, it’s a buyout plan that governs how their share of the business will be sold or transferred to someone else.
Why are buyout plans essential?
It’s all about the survival of the business beyond the survival of any partnership. One of the primary reasons for implementing a buy-sell agreement is to maintain the continuity of the business in the face of unexpected events in the lives of those in charge. Even in the face of abrupt changes, a well-crafted agreement can help the business operations tick along without major disruptions.
Another major feature of a good buy-sell agreement is a system for valuing the business (and, in turn, each partner’s share) when a partner leaves. Establishing a fair and transparent valuation method well in advance of any problems can help prevent disagreement when a buyout is triggered. This gives everybody a little financial security, and it makes it easier for existing partners to plan.
A good business partnership can be fantastic, but everybody needs to protect their interests. That means looking ahead and trying to anticipate future problems (even if you don’t really expect them to come to pass) and deciding how you should handle them. It’s always easier to make sure that nothing is overlooked in your contacts when you have the appropriate legal guidance.