Every business should give serious consideration to how the company would deal with the death, disability, or departure of one of the owners.
Like a will, a buy/sell agreement (also known as a business continuity contract) spells out how assets and other business interests will be distributed should an owner quit, become disabled, or die.
Without such an agreement, complications arising from ownership succession may capsize an otherwise thriving company. The remaining owners might be forced to share management and profits with unskilled or contentious outsiders. They may be embroiled in legal disputes over business assets and liabilities. A firm’s internal squabbles may spill over to customer service, resulting in lost sales. If the firm’s ownership seems doubtful or its future uncertain, creditors might accelerate collection efforts, bringing unwanted pressure on company resources.
The possible death of an owner isn’t the only reason to prepare a buy/sell agreement. Sometimes an owner voluntarily decides to leave a company. He or she may want to pursue another business opportunity, a change of climate, a different professional relationship, or a well-earned retirement. By providing a mechanism for assessing a firm’s value and ensuring that all parties are treated equitably, a carefully crafted buy/sell agreement will facilitate that kind of transition as well.
To ensure that the buy/sell agreement remains relevant and up to date, owners should review it periodically and revise it as needed. If you need help preparing or reviewing a buy/sell agreement for your company, contact us and your attorney.
Written by: Doug Rodrigues