Your Company’s Contingency Plan: How A Buy-Sell Agreement Can Benefit Your Business

Relationships are critical in business, especially when it comes to your co-owners or partners. It is crucial to place your trust in people who will work hard, bring complementary skills to the table, and keep up with their responsibilities to your business—and it’s equally important to have a contingency plan in case anything should happen to your partners. A buy-sell agreement is intended to clearly spell out your rights as an owner and to protect you and your business from unexpected outcomes.

Whether you are running a large corporation or a two-person partnership, any business entity can benefit from a buy-sell agreement. The purpose of this agreement is to outline what will happen if an owner dies, becomes incapacitated, goes bankrupt, or decides to retire or sell his or her stake in the business. It is legally binding terms can help you avoid financial problems and stave off potential conflict between family of the exiting shareholder and those who are remaining in the business.

What happens if you do not have a buy-sell agreement? Here is an example: say that you own a store with another person. When that person dies, how do you handle their share of the business? Do you permanently close up shop? Would you be allowed to buy out their family, or would another member of their family join you as a new business partner? These questions can lead to litigation when different parties cannot agree on the answers. As you can probably tell, the lack of a written agreement can lead to some outcomes that you were not prepared to face.

A buy-sell agreement lets you prepare for this kind of situation, and prevents there from being a conflict with family members or other business partners. It is like a will for your share of a business, except it deals with a wider variety of situations because it permits you to lay out exactly what will happen if someone leaves the business for any reason, well in advance and on your own terms. You can even use insurance, a common feature in buy-sell contracts, to make the transition go smoothly. For example, you might find a life insurance policy will help fund your end of the buyout in case your business partner should pass away.

Your buy-sell agreement is not all about preparing for the worst. It can also give you some extra wiggle room in case you ever decide to retire or start another business venture on your own. You can figure out the exact price of your buyout by getting the business appraised or applying a certain formula, establishing whether the funds will come from an owner’s finances or the business itself, and even determining how the payments will be made. Buy-sell agreements offer flexibility, so you can prepare different terms for any future event you can imagine.

Your business’s buy-sell agreement can be as simple or as detailed as you want. While more specific terms can offer more preparation for the future, any written agreement is better than none. An experienced lawyer makes all the difference in the contract writing process. Contact the law firm of Gersten & Muir to get specific, insightful advice on your company’s buy-sell agreement and the terms it should include. We will make sure the contract is sufficient to support your interests in case of any unexpected events.

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Written by Gersten and Muir

Gersten and Muir

The attorneys of Gersten & Muir, P.A. are passionate advocates for businesses throughout Miami-Dade County. We provide numerous business legal services to help make your company grow and flourish. We are knowledgeable and dedicated to finding solutions that fit your company’s needs.