Buy-Sell Agreements - The Basics

Starting your own business is exciting, overwhelming, and consuming. Entrepreneurs live and breathe their businesses every minute of every day, and for good reason. No matter what your new business is, it will demand all of your time - and then some.

 In spite of all the time and attention entrepreneurs dedicate to their businesses, there are two major considerations that new business owners frequently fail to recognize:
  1. How will you get out of your business when you wish to retire?
  2. What will happen to your business if you or one of the other owners pass away or become disabled?
It is absolutely inevitable that both you and your co-owners (if any) will separate from the businesses eventually, whether by retirement, disability, or death. It is important that you plan ahead for these occurrences.


Buy-Sell Agreements -- The Basics

A buy-sell agreement, in simple terms, is a document that can help you plan for the eventual separation of a business owner from the company. The buy-sell agreement outlines specific terms for how the business owner's interest can be divided among the remaining owners, and the conditions under which this distribution of ownership can occur. In order for this to happen, there must also be methods in place for valuing each of the owner's interest. 

Buy-Sell Agreements -- A Few Specifics

Buy-sell agreements are rather complex, with various details that must be addressed. A full buy-sell agreement is too complex of a document to fully outline in this post, but here are a few general observations:
  • Buy-sell agreements should have specific instructions for how to handle the distribution of ownership under a variety of different situations, such as death, disability, retirement, and even divorce.
  • Buy-sell agreements should include a method for funding the buyout of one owner's interest when he/she leaves the company. This is typically done by setting aside an account with a lump sum of money specifically for that purpose or by purchasing disability/life insurance for the owners.
  • Buy-sell agreements should dictate the amount of each owner's share in the company as well as the worth.

It is also important to note that buy-sell agreements are not something you can set up and then never review and revise. Because companies and their local markets are constantly changing, it is important to review your buy-sell agreement every one to three years. 

Set Up A Consultation With A Business Attorney To Get Started

Because of their complex legal requirements, it is important to seek legal assistance for establishing a buy-sell agreement. If you are looking for a business attorney at the Lake of the Ozarks, give us a call! We would be happy to assist you with anything you may need.
Law Offices of Phillips, McElyea, Carpenter, & Welch, P.C.
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