What is a BuySell Agreement?
Thursday, November 10, 2011 at 1:30PM A buy–sell agreement is a written contract between co-owners of a business that governs what happens if a co-owner chooses or is forced to leave the business.
A buy–sell agreement should address the following issues:
- Can an owner sell their shares or does the company have the right to buyout that owner?
- If the company has the right ot buyout an owner, how is the price determined and what are the terms of the sale?
- Will certain events force a company buyout (the most common events that trigger a buyout are: bankruptcy, death, disability, divorce, retirement, or a collection action against the owners stock in the corporation) and;
- Does the corporation repurchase the stock or do the remaining owners purchase the stock?
Funding is also an important issue to be addressed - will the corporation or remaining owners have the financial abitlity to buyout the departing owner? One method is to obtain life insurance on each owner to fund a buyout triggered by death. Another common method is to structure the payment terms so that the buyout is affordable and not damaging to the financial health of the corporation.
The best time to obtain a BuySell Agreement is before any of the owners becomes a seller. As long as all of the owners may be a seller or a buyer under the BuySell Agreement, it is much more likely that a mutually agreeable agreement will be worked out and will be honored at the time the BuyOut is triggered.
If you are forming a company and need a BuySell Agreement, NLF can help you at an affordable flat fee rate.