Savvy Business Owners Plan for Success…ion–With a Buy and Sell Agreement
Imagine after years of building your business with partners
- The shareowners (shareholders) have a disagreement and one wants out of the business.
- He decides to sell his shares to a competitor (WHO)
- A shareowners (shareholders) becomes disabled after hitting a tree mountain biking and needs cash for surgery.
- He decides to sell his shares back to partners (HOW MUCH)
- A shareowners (shareholders) has to declare personal bankruptcy
- He decides to sell his shares back to partners (CAN I GET A LUMP SUM, or when do I get paid)
- A shareowners (shareholders) suddenly dies
- His shares are transferred to children (NEW PARTNERS)
The remaining partners should be able to determine who they work with, how to remove someone that does not want to be there, control the value of the shares, and have strategies and funds to quickly convert business shares into cash to further provide financial security.
One of the most important documents business owners can have in place is a buy and sell agreement. The buy and sell agreement is the legal outline providing instructions as to how the business is to carry on after someone leaves. Whether the business separation is voluntary (retirement) or involuntary (death, disability, divorce, dispute) indicating how the business is to proceed or not (CLOSED) is vital regardless whether the business has multiple partners, one other partner or is just you.
The buy sell agreement should first address what will cause the agreement to go into effect. (see above). Early on when everyone is friendly and relaxed discuss these trigger events. Then determine how the shares will be purchased from the departing shareholder.
- Cross Purchase—other owners agree to buy each other’s shares
- Share Redemption—Company purchases from departing shareholder
So where will the money come from?