Buy-Sell Agreement: An Overview
A buy sell agreement is a contract between business owners that determines what happens to business ownership upon the occurrence of a triggering event, such as death, retirement, bankruptcy, or sale of the business. A buy sell agreement can mitigate confusion and help business owners and their families to avoid becoming entangled in disagreements and messy litigation.
There are different types of buy sell agreements, including cross purchase agreements, redemption agreements, and hybrid agreements. A cross purchase agreement allows one partner to buy the other’s shares (in the event of death, retirement, etc.) at an established price. With a redemption agreement, the company itself buys the exiting partner’s shares, typically using funds from a life insurance policy. A hybrid buy sell agreement combines elements of the cross purchase and redemption agreements.
The terms of these agreements can vary depending upon the circumstances surrounding a partner’s exit from the business.
Seek Expert Guidance When Drafting Your Buy Sell Agreement
It is important for business owners to draft a buy sell agreement that will determine what happens to ownership of their businesses after a triggering event. Without a buy sell agreement, remaining business partners and their loved ones may face tax and liquidity problems and ownership disputes, or simply lose the business due to an inability to keep operations running smoothly while trying to sort out these problems. An experienced attorney can help to ensure that a business owner chooses the right type of agreement and that the terms of the agreement protect the interests of the owners and the business.
Contact Byrnes, O’Hern & Heugle
If you are a business owner and you do not have a buy sell agreement, call one of our knowledgeable attorneys at Byrnes, O’Hern & Heugle. We can help you to determine the best type of buy sell agreement for you and your business, and draft a legally sound document for you. Contact us online today for a free initial consultation.