When you get into business with a partner, you also need to plan how to proceed when you, or your partner, want to get out of the business. It will happen one day. The buy-sell agreement will outline the circumstances under which an ownership transfer can be initiated and how it will be executed.
Your buy-sell agreement will be unique to your business. The significance of this document cannot be understated. It makes a way for an exiting partner to be compensated while preserving the ability of those who remain to continue doing business. The use of professional, competent legal and tax advisors is highly recommended.
The buy-sell agreement should, at a minimum, include:
• What are the trigger events that would require the use of this document? Death, disability, retirement, or simply wanting to leave the business.
• Who can purchase the departing investor’s share? Can outsiders buy in, or will it be limited to other partners and shareholders?
• What method will be used to determine the value of the stock? You should make provision for an unbiased appraisal at the time of sale. Even the formulas for determining the value can be included in the document.
• Purchase price should be updated annually.
• How will the purchase price be paid? Details regarding the financing options and arrangements must be included.
• Include an option to change or terminate the document.
These matters can become very personal and complicated. It is much better to determine the parameters before they are needed. Call us for help in navigating these issues.