Buy Sell Agreement – Why You Need One?

It’s Like A Pre-nup for your Company

When you got married, you may have signed a binding financial agreement in the hope this would never be put into fruition. You hoped the marriage would last, but you are realistic.  You took the necessary steps to make sure your assets and interests are protected.  Lets face it!  It was easier to agree on things while you were still on good terms, rather than waiting for the divorce.

This also applies to a Company 

You may have the same concerns if you’re starting a company.  You may be concerned for the following reasongs.

• Your business partner is injured or disabled or seriously injured.
• Your business partner unexpectedly passes. 

A buy sell agreement, also known as a buyout agreement, is a contract that provides for the sale of an owner’s share of a business. The sale may be triggered for several reasons, such as the owner’s retirement, bankruptcy, unresolvable conflict with another owner, death, or disability. The buyer may be another owner, employee, or third party.

A smart reason to draft a buy sell agreement (especially in the Covid-19 climate) is that the  “fingers crossed method” is not a good business strategy. If you don’t have a buy sell agreement, a number of serious things can impact you business at some point.

• The business could wind up in the wrong hands.
• Without specifying a ready buyer for your business in advance, you may not receive fair compensation when you exit.
• If you are forced to find a buyer for the business on short notice, expect the sale price to be far below fair market value.

A well-crafted, comprehensive buyout agreement eliminates the above risks.