How Important is a Buy-Sell Agreement for Your Business?

In the euphoria of starting a new business venture with your partners, you may have neglected to create a Buy-Sell Agreement. Does it matter? Absolutely!  Is it too late? Not if you can still get your co-owners to agree on one.

Why should you want a Buy-Sell Agreement?

Simply put: Control. Control by you or your heirs to cash in on the value of your business interests, and control by you to determine who your business partners are.

Buy-Sell Agreements typically address the transfer of business interests when there is an event such as the death, disability, divorce or bankruptcy of an owner.

If you die without a Buy-Sell Agreement, then your heirs can’t force the other co-owners or your company to buy out your interest in the business. That may be bad news for the future welfare of your family, particularly if your business represents a significant part of your wealth.

Even if your co-owners agree to buy out your interests upon your death, what will the purchase price be? Without a Buy-Sell Agreement, you’ve not agreed to a valuation method. Your family will not have bargaining power on price when you’re dead if a valuation formula hadn’t been agreed upon in a Buy-Sell Agreement before your death.

Similarly, if one of your partners files for bankruptcy, suddenly you may have his or her creditors as your new “partner”. Or, maybe the divorcing spouse of your one-time partner is now your new co-owner. Maybe the ex-spouse doesn’t want to sell out even if you want to buy the ex-spouse’s interests. You can’t force the ex-spouse out without the proper provisions in a Buy-Sell Agreement.

The time to draft a Buy-Sell Agreement is before it is needed. If you’ve been fortunate so far, thank your lucky stars. But make an appointment with an attorney as soon as possible to draft a Buy-Sell Agreement before your luck runs out.

©2014 Wittenburg Law Office, PLLC. All rights reserved.

Disclaimer: This Blog is for informational purposes only and is not to be construed as legal advice. If you have questions, please seek the advice of an attorney. An attorney-client relationship is not formed by reading this Blog. If you are interested in Wittenburg Law’s representation of you, you must contact Wittenburg Law for a determination of whether your matter is one for which Wittenburg Law is willing and able to accept representation of you.

Bonnie Wittenburg, Wittenburg Law Office, PLLC, 601 Carlson Parkway, Suite 1050, Minnetonka, MN 55305         952-649-9771     bonnie@bwittenburglaw.com   www.bwittenburglaw.com