What is a Buy-Sell Agreement?
A buy-sell agreement is a critical document for a closely held business. A buy-sell agreement is an agreement between co-owners of a business that stipulates what will occur if an owner decides to leave the company or an owner dies. Such an agreement protects both the co-owner remaining at the business and the co-owner, and his or her family, who is leaving. Regardless of what type of business entity you are formed as (corporation, LLC, partnership, etc.), a buy-sell agreement is appropriate and recommended to protect the interests of the owners of the business.
What Does a Buy-Sell Agreement Cover?
A buy-sell agreement includes a variety of provisions, including provisions covering the retirement, divorce, disability, and death of a co-owner. The agreement also governs how a transfer, whether voluntary or involuntary (such as bankruptcy or sale) should occur. Specifically, such an agreement governs how a co-owner can sell their interest in the business, who the co-owner can sell to, how much they can sell for, and when such a sale can occur.
Many family businesses employ family members, such as sons and daughters-in law. However, the owners of the family business could be concerned about other in-laws acquiring an interest in the business. This could result in that interest later being passed on to a distant relation or an unknown owner. A buy-sell agreement can address this issue by restricting the transfer of ownership, creating a mandatory purchase regime upon divorce or death of the owner, and conversion of an ownership interest to a non-voting interest upon the occurrence of a triggering event.
The buy-sell agreement can provide a mechanism for the owner of the business to sell control of the business to one or more of his or her children. This alleviates the concern that the family business may be destroyed by dividing ownership evenly among children, whether they were involved in the business or not.
The agreement can also provide a way to resolve business disputes. Let’s say that a business is divided evenly so that no one person has control. Minority owners have certain rights and it can be expensive for the majority owners to have to constantly gauge whether a minority owner will attempt to disrupt the business.
When Should I Create a Buy-Sell Agreement?
Every co-owned business needs a buy-sell agreement either when the business is formed or soon after. Every day that a business exists value is added to it. This increases the risks that you and your business face if a buy-sell agreement does not exist. Contact Attorney David Johnson and consult with him regarding how to protect your business.
Columbus and Delaware, Ohio Small Business Attorney
If you are a Columbus or Delaware, Ohio small business owner or aspiring entrepreneur who wants to protect your business, contact Johnson Legal, LLC and speak with an experienced small business lawyer. Attorney David Johnson of Johnson Legal, LLC will discuss your small business and how a buy-sell agreement can protect it. Call (614) 987-0192 or send an email to schedule a consultation.