Why are Buy-Sell Agreements so Important?

Why are Buy-Sell Agreements so Important?

| Feb 1, 2017 | Real Estate Law |

An important, yet often overlooked situation by business partners is the possibility of a co-owner eventually separating from the business. This may be voluntary or involuntary; however, it is a situation that must be considered.

The Need for the Buy-Sell Agreement

In most cases, a situation where a person is leaving a business can be handled with a Buy-Sell Agreement. This is a type of legally binding contract held by the co-owners of a business entity. It is used to clearly define the procedure that should be taking by the business owners when one of the co-owners wants to leave. In most cases, the result is that the shares owned by the departing business owner are bought by the actual business, or another co-owner.

Some of the most common reasons a person departs a business include (but are not limited to):

  • Divorce
  • Bankruptcy
  • Judgment execution proceedings
  • Voluntary sale of ownership interests
  • Resignation
  • Disability
  • Death

Effects of Co-Owners Leaving a Business

When a co-owner separates from a business, it can result in undesirable, drastic and sudden changes to the ownership structure of any small business. This is especially true if a person with no knowledge of the business – such as a surviving spouse – finds themselves in control but doesn’t have the skills, experience or knowledge to effectively run the business. In most cases, sooner than later, businesses that are thrust into this situation will fail and as a result are forced to dissolve.

Also Read: How to Protect Yourself in Your New Business Partnership

Creating a Plan for Succession

If you own a business, it is imperative that you think about these possible change of ownership events. In doing so, you will see why it is so important to plan for the succession of the business in the future. Some instances of someone separating from the business are inevitable – such as death. However, with a Buy-Sell Agreement, you can set forth what type of situations would trigger the buy-out of a departing owner’s shares, who has to or who can purchase the shares and the price that needs to be paid for the shares. Also, these agreements typically stipulate how the purchase price should be funded.

Seeking Legal Help

There is no question that business law in Florida can be complex and confusing. However, ensuring your business is prepared for any and all potential issues that may arise is the best way to ensure the desired outcome is achieved.

Hire an Experienced Business Law Attorney

Hiring a business lawyer is the best way to ensure your business and assets are protected. They can help create a Buy-Sell Agreement, as well as any other documents that may be required. If you have any questions about Buy-Sell Agreements, why they are important or how to create one for your business, contact to West Palm Beach Business Law Attorney  at the Law Offices of Peter M. Feaman, PA today.