Business buy-sell agreement topics (March, 2005)
Article for THE LEGAL CORNER: ANSWERS TO COMMONLY
ASKED QUESTIONS REGARDING THE LAW.
WHO NEEDS A BUY-SELL AGREEMENT?
Before a death, disability, desire to retire, or voluntary sale of your interest
in your business occurs, you should have in place a Buy-Sell Agreement providing
for how the withdrawing partner or shareholder’s share is to be acquired
by the business or remaining partner(s)/shareholder(s).
WHAT ARE THE COMMON PROVISIONS IN A BUY-SELL AGREEMENT?
In order to ensure continuity in the business, provisions in a Buy-Sell Agreement
usually address what happens:
- When a partner or shareholder wishes to voluntarily sell their interest in
the business.
- When a partner or shareholder’s employment with the company is terminated
voluntarily or involuntarily.
- When a shareholder becomes disabled and unable to work any longer in the business.
- When a partner/shareholder retires.
- When a partner/shareholder dies.
HOW ARE THE TERMS OF A BUY-SELL AGREEMENT DETERMINED?
There is no one formula that is right for every partnership/corporation. Consultation
with an attorney in order to determine the appropriation restrictions/provisions
for sale of a partners/shareholder’s interest in a business or plans to
provide for buyout of a partner/shareholder’s interest in the event of
death, disability, retirement or termination of employment should be carefully
thought through with the assistance of an attorney. It is especially important
to determine a buy-out formula/establish provisions to determine the value of
a partner/shareholder’s share in a company in consultation with an attorney
and an accountant.
The information contained herein is general information about the law only.
The law is subject to change. If you have a specific legal question and want
your question(s) answered, consult with an experienced attorney.