Secure Your Business Partnership with a Buy-Sell Agreement

A buy-sell agreement is a binding contract between co-owners or business partners that defines what will happen to a company in the event that one owner wants to sell their shares or membership interest or is compelled to quit the company due to death, incapacity, or other circumstances.

Buy-sell agreements are usually included in the organizational documents of a company, such as a shareholder’s agreement or an operating agreement. Certificates of shares or membership interests may also reference these agreements.

In order for both parties to agree on a fair price for the shares being bought or sold, the buy-sell agreement often contains a formula for valuing the business. Who can buy the departing owner's interest may also be specified in the buy-sell agreement and may be limited to the other co-owners or the company itself.

Buy-sell agreements can help prevent future problems and arguments between business partners in the event of a partner’s withdrawal from the company, death, or disability, as well as provide the family of the departing partner with financial security. A buy-sell agreement can further protect the business by preventing ownership from passing to a third party that might not share the company’s values or objectives.

Cross-purchase and entity-purchase agreements are two examples of the various buy-sell arrangements. In a cross-purchase agreement each co-owner agrees to purchasing the withdrawing owner's interest in proportion to their own ownership interest. Using funds from the business or through insurance policies, the company itself may purchase the withdrawing owner's interest through an entity-purchase agreement.

Co-owners may also incorporate a right of first refusal or a right of first offer within the buy-sell provisions that will allow a withdrawing member to sell their interests after giving the other co-owners a chance to match third party offers or make the first offer.

In general, a buy-sell agreement can be a useful instrument for co-owners or business partners to protect their interests and maintain the sustainability of the company in the event of unexpected circumstances. In order to ensure that a buy-sell agreement appropriately reflects the needs and objectives of all parties involved, it is crucial to consult with a legal expert while drafting one. Atik Law PLLC provides high quality, deal-specific drafting and consultation services for corporate governing documents, including buy-sell agreements.