Is It a Good Idea to Have a Buy-Sell Agreement?

When starting a new business, it is essential that you plan for the future. When your business is a partnership or there are multiple owners, a part of planning for the future is to consider what will happen if any of the co-owners want to leave the organization or sell their interest.business for sale

A buy-sell agreement can protect you in case of the death, divorce, disability or departure of a co-owner of your company.  The agreement can also ensure you are able to depart the business with your investment in tact if you need to move on.

The Law Offices of Mike Ross can explain why you must have a buy-sell agreement and can represent you in drafting a contractual agreement that protects your company and your investment. Call a San Jose business startup lawyer today to schedule a consultation and learn more about how a legal professional can assist with a buy-sell agreement.

Why You Should Have a Buy-Sell Agreement

A buy-sell agreement is a legally binding contract between co-owners of a business enterprise that specifies what will happen if one of the owners must depart the business for any reason.  You must have a buy-sell agreement to ensure that your business does not fall into the wrong hands if one of your co-owners sells or gives his share to someone you do not wish to work with. The agreement makes sure that disagreements and problems are avoided if a business owner leaves, and makes it possible for the business to seamlessly transition to a new owner so operations are not interrupted.

Co-0wners of a business who recognize that they must have a buy-sell agreement can negotiate the individual terms of the contract so that the agreement makes sense for their specific needs as well as for the long-term survival of the company.  Typically, buy-sell agreements contain multiple clauses including:

  • Provisions on who can buy a shareholder or departing partner’s share of the company.
  • Details on the types of events that can trigger a buyout, such as retirement, death, disability or divorce.
  • The price that will be paid for an ownership share in the business, or a formula for determining the price of an ownership interest at the time of sale.

Typically, the co-owners are given the right-of-first refusal when someone wants to leave a business. For example, the remaining partners could be given the first chance to purchase the ownership interest of a partner who is moving on to other opportunities.  It is common for co-owners of a partnership to purchase life insurance policies on the other owner’s lives so the funding will be available for a buy-out if a death or departure occurs.

The buy-sell agreement can be structured as a repurchase plan allowing for stock redemption, or a cross-purchase plan, among other options. An experienced attorney should be consulted for assistance in creating an enforceable buy-sell agreement that protects your interests.

The Law Offices of Mike Ross can provide you with guidance throughout the process of creating your agreement and can also assist with other legal needs of startup businesses. Call today to speak with a San Jose business startup lawyer who can help you.

Mike Ross

Mike Ross

Having been a general counsel of a prominent local companies for over 25 years and an attorney at Orrick, a large international law firm, Mr. Mike Ross possesses a rare combination of expertise, insight and value, resulting in a deep appreciation for how clients want legal services delivered: quickly, cost-effectively and with a focus on results.
Mike Ross

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