The All-Important Buy-Sell Agreement…For Small Business
If there are two or more persons involved in running a small business, the question to ask is- What would happen if one of the partners/owners/shareholders became il; disabled or died?
The all-important buy-sell agreement can provide a type of ‘safety net’ for all the partners. It can also create a clear pathway to follow for the business entity.
The buy-sell agreement (in its simplest form) is a written agreement between two or more owners of a business. For example, upon the death of one of the business partners, the other owner(s) will have the right or the obligation to buy the business interest from the owner who is then obligated to sell. This is only one simple example, there are a myriad of possible scenarios.
A ‘triggering’ event for the buy-sell agreement might be the death of one of the owners of the business or the disability of one of the partners or a shareholder.
The agreement can outline what funding mechanism will optimally facilitate the purchase of an owner’s interest, as well as the timing of the purchase.
A carefully constructed buy-sell agreement could mean the difference between the survival of the business entity and the eventual closing of the business.
The death of one of the partners need not be the reason to seek a ‘quick sale’ from an outside buyer. Following the unexpected death of one of the owners, the timing of the sale might not be the best, or there might be no buyers for the business.
A properly structured buy-sell agreement can be protection for both the owner who is incapacitated and the other owners/partners/shareholders of the business.
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