Taking the right steps to ensure that your business will continue to run smoothly if you were to lose a business partner is a very important decision. Have you considered what will happen in the event of divorce, disability or even worse, death?

What Is The Value of "Buy-Sell Agreements"?

A buy-sell agreement can establish the value of the business, assure that there is a buyer for the business and improve creditworthiness of the business. 

Think of a buy-sell agreement as a formal exit strategy that ensures everyone is treated fairly, the business is in a position to continue and the family is well cared for.

What Are The Types of Buy-Sell Agreements?

Note: The type of buy-sell agreement that is best suitable for you will be influenced by your business structure, who owns the business and your family situation.

The buy-sell agreements include:

  1. Entity Purchase Agreement:- Under this agreement, the buyer is the business. The business owners agree to sell their ownership interest back to the business if they become disabled or wish to retire. 
  2. Cross Purchase Agreement:- The co-owners will purchase the selling owner’s business interest. The business itself will not be involved in the purchase.
  3. Wait-and-See Buy-Sell Agreement: This agreement allows the business owners to delay the selection of an entity purchase or a cross-purchase buy-sell agreement until an actual death, disability, retirement or sale of a business interest.

Once you determine which agreement is best for your business, your attorney will draft the agreement

The agreement will spell out all of the details including key areas being:

  • The trigger events - death, disability, retirement, termination, divorce, bankruptcy
  • Who will purchase the interest - the business, co-owners, key people, third parties
  • The value of the business - set price, formula
  • How the price will be paid