Is Your Company Protected by a Buy-Sell Agreement?

Linda Jenkins, February 21 2015

 

 buyout agreements book

Have you ever thought about what would happen to your business if your co-owner suddenly died or decided to voluntary leave for whatever reason? Would his or her spouse be protected? Could you agree on buyout terms?

Any business that has co-owners needs to have a Buy-Sell Agreement. This legal document protects the interests of all owners and their heirs should a death, divorce or voluntary sale occur. The best time to draft a buy-sell agreement is upon startup, and it should be revised as new owners enter the business, or otherwise, on an annual basis to update the company's projected value. Drafting this document and having co-owners sign the agreement is important because it:

  •  Reduces legal disputes (by having partners agree ahead of time on terms)
  •  Protects co-owners and heirs (by ensuring a fair value for their interest in the company)
  •  Protects the company (from taking on unexpected partners, ie. a spouse or relative of a deceased co-owner)
  •  Protects the company's financial future (if a portion of life insurance proceeds are alloted to cover the company upon a co-owner's death)

If you have business partners and have not yet taken the time to draft a Buy-Sell Agreement, be sure to consult with your business attorney as soon as possible to complete this very important document.

You should also prepare yourself for legal discussions about your business by reading up on how agreements should be drafted.