A Buy-Sell agreement, also known as a ‘buyout agreement’ is a legally binding agreement between co-owners of a business that determines what happens if a co-owner dies or is otherwise forced to leave the business. Not unlike a will, buy-sell agreements serve as a premarital agreement between partners/shareholders, and legally defines how an owner’s interest is to be distributed if he or she dies, or becomes permanently disabled. This helps ensure that a business or professional practice can continue after the death or disability of one of the owners or partners.
Buy-Sell Agreement Terms
Buy-sell require each owner or partner to sell his or her interest to the remaining owners – or to the business entity itself – under terms defined in the agreement. It equally obligates the remaining owners or the business entity to purchase the deceased or disabled owners interest, and stipulates the formula by which the price will be determined. Buy-sell agreements are generally negotiated far in advance of the buyout itself, by a mutual agreement among the owners or partners. When a sole proprietor dies, a key employee may also be designated as the buyer or successor.
Buy-sell agreements are also used to help partners manage potentially difficult situations when it comes to the distribution of business assets after the departure of a co-owner. Agreements can be make, for example, to restrict owners from selling their interests to outside investors without approval from remaining owners. Likewise, agreements can be made to establish a method for determining the business’ value and clarify the value of the partner’s shares.
Contact BBG For More Information
BBG can help your business navigate these complex agreements, finding creative solutions that are mutually beneficial for both buyers and sellers. We will work to ensure that the buyout process protects both the personal and family interests of the decedent, as well as those of the business.