Buy-Sell Agreement



A buy-sell agreement is a contract between co-owners of a business that provides a framework for succession if one owner leaves the business.

Uses

  • Creating a new business.
  • Planning for succession of business ownership.

Overview

Smart business planning involves preparation for the unexpected. Even if a business owner expects to be involved in the operations her company forever, the time will eventually come when she is no longer willing or able to work every day.

Business owners should have a plan of action that comes into effect if they become unwilling or unable to run the business for any reason. Buy-sell agreements are common in business succession plans and they are very helpful in creating a system that a business owner can use to easily withdraw from the company in the event of death, disability, or resignation.

Buy-sell agreements should be very clear to avoid any possible ambiguity in the event that any original signatory is no longer available to explain their intention. This means all details – including when the agreement is triggered, who is entitled to take ownership of the shares at issue, how the business will be valued, sources of funding, and several other terms – must be worked out in advance.

By executing a preemptive buy-sell agreement, business owners can ensure their company can continue to operate even if something were to happen to them in the future. Buy-sell agreements not only provide peace of mind in this regard, they also limit risk and liability for any potential future investors.

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