Every small business with more than one owner needs a Buy-Sell Agreement.
What happens to a company after an owner retires, becomes disabled, or dies? Who takes over? Who
gets their shares? With a Buy-Sell Agreement in place, you can ensure those questions have an answer.
A well-drawn Buy-Sell Agreement will eliminate potential and serious problems for your families and
business partners.
Types of Buy-Sell Agreements
Buy-Sell Agreements apply equally to corporations, limited liability companies, and partnerships; and
there are two basic types: Redemption Agreements and Cross Purchase Agreements.
A Redemption Agreement, or Entity Purchase Agreement, is an agreement between the company and
the owner (partner, shareholder, or member) which obligates – or allows – the company to purchase
the interest of an owner who dies, becomes disabled, or retires.
A Cross Purchase Agreement is an agreement between or among the owners which allows one or more
of the other owners to purchase the interests of another owner who has died, become, disabled or
retired.
Keep in mind that Buy-Sell Agreements are not limited to the departure of an owner due to retirement,
disability, or death. They can apply to a departure or withdrawal of an owner for any cause.
What are some benefits of a Buy-Sell Agreement?
- Control of Ownership– Such an agreement helps to control who can become an owner of the
company. If your company is in business with another company – and there is no Buy-Sell
Agreement – you will probably find yourself in business with that company’s spouse and/or
children. They may know nothing about the operation of the business or may prove to be
difficult to work with even in routine management decisions. - Smooth Transition of Ownership and Management– A Buy-Sell Agreement allows a transition of
ownership without confusion or dispute. A well-crafted Buy-Sell Agreement will give everyone
peace of mind knowing an advance plan for the transition is in place. - Training for the Future– A Buy-Sell Agreement encourages the owners to begin training the next
generation of managers early. Without an agreement to lay the groundwork, attention to the
transition is often neglected.
A Buy-Sell Agreement is the type of agreement that you would prefer to never use, but is critical if the
need arises. Want more information on Buy-Sell Agreements? The lawyers at Stanko, Senter & Mitchell will gladly help you today!