Why Buy Sell Agreements?
Updated: Jan 11
Per Forbes, 3 out of 4 small companies lack a Buy-Sell Agreement.
Ask yourself the following questions:
If I die…
Does my wife wish to work with my partner?
Will my beneficiaries be able to negotiate a fair payout of my stake in the company?
Can the company survive without me?
If I have not saved up enough cash, can my spouse and kids survive?
What if my partner...
File for bankruptcy?
Wants out at an unrealistic cost?
What if there has to be a change in ownership structure...
Can you bring on new partners?
Can you terminate partners?
Buy out, partners?
While a buyout agreement will not resolve every business challenge between partners, it certainly creates the groundwork and principles for business partners. Ideally, this agreement should be consummated at inception or when “things are good”. At this point in the life cycle, the individual outlook is positive and amicable versus the situation of animosity and egos playing a role.
There are numerous clauses and verbiage that can meet everyone’s needs. It’s not about trying to get the upper hand, it's all about playing fair with predetermined formulae. This is no different than estate planning or writing your own will. It addresses all the pain points, in unfortunate circumstances.
Ultimately, money is the key driver – it always is.
The biggest question that needs
to be answered is, how will I or my surviving family get paid out if I exit (voluntarily or involuntarily).
A buy-sell agreement protects all parties while creating a predetermined framework of the most logical “must-ask” questions and hypothetical situations.
I urge all business owners, to invest the time in researching and closing the loop in protecting perhaps your biggest asset. The cost is so minimal in relation to what you can lose…..