A Buy/Sell agreement is important for business succession planning. A Buy/Sell Agreement provides for the future transfer of your business interest to a co-owner, or for the purchase of a co-owner’s business interest by you, upon certain events occurring. 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 using a valuation process and payment plan set forth in the agreement. 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.
When does a business need a Buy/Sell Agreement?
Every business that is co-owned should have a Buy/Sell Agreement. Without a Buy/Sell Agreement in place, the business owners live with unnecessary risk.
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 method 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.