Buy/Sell Agreement

A buy/sell agreement is one of the most important, and often under utilized documents, in business succession planning.  A buy/sell agreement provides for the future sale of your business interest to a co-owner, or for the purchase of a co-owner’s business interest by you, upon a certain event. Those events may include death, incapacity and retirement.

A buy/sell agreement can ensure a seamless continuation of your business, upon your death or that of your business partner, allowing the survivor to buy the deceased partner’s share.  If you or your business partner do not have a buy/sell agreement in place, the deceased partner’s business interest will automatically pass to the deceased’s heirs — leading to potential disputes that can disrupt business.


FAQ

When does a business need a buy/sell agreement?

Each and every business that is co-owned should execute a buy/sell agreement the day the business is formed.  Every day a co-owned business is in existence without a buy/sell agreement there is a financial risk to the co-owners.

How is the business valued when being bought out by a co-owner?

The business can be valued by a professional appraiser or by using a valuation formula that includes reviewing financial statements from previous years.  It is recommended that the valuation of the business be addressed in the buy/sell agreement so the co-owners agree upon the valuation approach in advance. This will help alleviate confusion and disputes when the buyout occurs.