Forming a business can be an exciting step, especially when you are venturing out with a partner or partners. However, before getting too far ahead, you should always make sure that you have a buy-sell, or buyout agreement, in place the moment your business is formed or as quickly as possible after the formation. Why is it so important to have this agreement in place? Though it seems like early on to be planning for one co-owner’s departure, it is crucial that you have a plan in place to prevent any legal complications. This type of agreement can help ensure a smooth transition should anyone decide to go their separate ways.
Buy-sell agreements can help you clarify the following:
- When your co-owner or you can sell your interest
- Under what circumstances a co-owner must/can sell
- Who is allowed to buy into your business
- What the price tag will be
For example, if there were three partners in a business, and one of those partners passed on, their share would need to be bought by the other two partners for the business to carry on as usual. However, if there was no agreement in place, their share may be included in their estate, which would result in a more complicated process.
What can a buy-sell agreement do for our business?
Overall, these agreements work to give you an easy solution to resolving issues that arise when a co-owner wants to sell their shares off, retire, or even passes away. Not only that, but a buy-sell agreement can also help protect your business investment from other harmful incidents tied to your co-owner, such as bankruptcy or divorce.
By setting the price and terms for a buyout, you can eliminate any confusion, disputes, or other issues that may arise in the future of your business. Even if the future seems far away, starting with the right foundation is in everyone’s best interests. Each day that value is added to your business without any plans for these situations, it puts your financial standing and your business' growth at risk.
Ready to take the first step in creating an effective, fair, and detailed buy-sell agreement? Reach out to M. Ross & Associates, LLC to speak with a Bergen County business law attorney.