Top Reasons Why Your Company Needs a Buy-Sell Agreement

by | Oct 18, 2016 | Business Law

As any business owner knows, disputes within a partnership or even a bigger business can be a significant roadblock to success. In fact, these can even distract company owners and managers from being able to accomplish business goals and achieve targets on time. These can also represent significant costs in terms of additional time and frustration as well as distraction dealt with coping with the issues. This is one of the primary reasons that you should consider a buy sell agreement. Even though you and your partner might be on the same page now, this is no guarantee that you will both be able to agree about things well into the future. There may come a time when someone needs to depart the business, for example, and having a buy sell agreement clearly outlined can help to allow for changes. The best way to adapt to change and have a clear outline for what happens if someone needs to or wants to depart the business can be extremely beneficial. The agreement may also outline the procedures that you wish to use in order to resolve disagreements with the majority of owners. Here are several of the most common reasons you should consider a buy sell agreement.

If You Intend to Leave the Business and Want to Release Your Stock in the Company, You Are Protected

A buy sell agreement would outline the method by which the fair business price could be determined. You can eradicate potential disputes and lawsuits by agreeing on what is fair well in advance. This can be extremely beneficial if you are the individual departing the company. Make sure the valuation method is clearly explained and discuss it with your experienced Florida business law attorney.

You Should Always Have the Ability to Choose Your Partners

When you choose to go into business with partners, this is something you have probably thought extensively about and probably done your research. It will be unfortunate to have all of this research and diligence go to waste, however, there are multiple reasons that someone may decide to leave the business. They might be forced to sell due to bankruptcy, they may pass away or become disabled, or they may decide to sell or get divorced and have a spouse owning some or all of the shares. You may find new partners involved in the business that you never intended to have in the first place and having a clear buy sell agreement can help to eliminate this situation as well as disputes and conflicts that may emerge as a result of it.

Stop Minority Shareholders from Vetoing a Business Sale

In the event that you intend to move forward with a business sale, a drag along clause inside your buy sell agreement can require the entire business to be sold if a majority of owners are able to come together and agree on this.

Protect Minority Shareholders from Being Cheated Out of Sale Proceeds

If a buy sell agreement has a tag along clause, then when the business is sold, minority owners could be entitled to the same per share price as majority owners. This stops any majority shareholders form conspiring with a business buyer and extracting control from the buyer, causing damage for others.

Protect Your Family

One of the biggest reasons that you may choose to enact a buy sell agreement for your business is to protect your own family members in the event that you were to become disabled or to pass away. If this were to happen to you, you would be ineligible to negotiate on your family’s behalf. Your family may be in the position of receiving your interests in the company. If this is the case, you want your family to be paid fair value for your interest in the company. Surviving owners in the business may be hesitant about a fair payment for your stake and are likely to engage in low- ball negotiation with your family members. Having a buy sell agreement, however, protects the ones you love the most and ensures that you have careful plans for the future.

Consult with An Expert Florida Business Law Lawyer Today

Any venture that is owned by multiple parties can benefit from a buy sell agreement. You should only put together a buy sell agreement after having the opportunity to work with a Florida business law attorney. You can help to avoid numerous conflicts and get on the same page with your current business owners now so as to protect yourself in the short term and the long term. Consult with an experienced Florida business law attorney if you have further questions.

Did you know contract disputes are some of the most common issues in businesses? /blog/2020/04/the-most-common-contract-disputes-likely-to-lead-to-business-litigation/


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