 You would sound an alarm if someone walked off with half of your money or your household possessions right? If you are a business owner with partners and have not put a Buy/Sell Agreement in place you could watch part of your business walk right out the door and never know what hit you. A Buy/Sell Agreement is a must. This is an agreement between business owners that spells out the terms by which any of you are allowed to be compensated for your share of ownership of the business upon certain events occurring. This agreement usually covers situations such as sale of shares to an outside party, death, disability, bad acts - (such as fraud or criminal activity etc),bankruptcy, retirement and even divorce. In any of these situations there can be a change in the number of owners or someone may be try9ng to keep ownership of the business in the right hands. The agreement is best entered into before any of the above events happen and when all parties are getting along rather than trying to come to an agreement when the owners are in a stressful situation. The agreement spells out the rights of the other owners to purchase the ownership interest of the owner who has had one of the above events occur and how that owner will be compensated. You may want to pay the family of a deceased owner in a lump sum for the value of their ownership interest to compensate them for the value of the ownership interest and the contributions of their deceased loved one. This can usually be accomplished with a life insurance policy on the life of each owner. If a buyout of the deceased owner's interest is not arranged for, you may end up in business with that deceased owner's spouse or children. In the event of a disability that would prevent an owner from participating in the business in the same capacity as before the disability or in the event that an owner wants to retire, the same circumstances as in death might occur - a buyout of the ownership interest maybe warranted. In this case the payments might be structured over time or as an earn out in the case of a retiring owner. The last few events mentioned are a little bit different. A buyout arrangement upon the divorce of an owner usually occurs to prevent any part of the business from falling into the hands of the former spouse of the divorcing owner which could create tension for all owners. Once the divorce is final or at least the property settlement has been agreed to, it may be possible for that divorced former owner to buy back into the business. Bad acts by an owner, whether against the company, other owners or any third parties or a declaration of bankruptcy by an owner can create many problems and issues for the business and its value. You may want to consider a forced buy out of an owner who commit bad acts or is in a position to declare bankruptcy. You may want to provide that an owner who commits bad acts would be compensated for their ownership interest at a greatly reduced valuation in these circumstances - an incentive not to commit bad acts. There are may ways to protect your company and your ownership interest and a Buy/Sell Agreement is one of the best ways to make sure that all owners are treated fairly and to make sure that the business remains in the hands of those who have made the contributions and sacrifices to grow the business to success. |
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