All businesses experience difficulties throughout the lifespan of the company. However, proper business operation practices can help to eliminate some issues before they even begin.
For those business owners who like to plan for the future, a buy-sell agreement could be essential. There are a few important benefits of this type of business arrangement.
Includes certain elements
As the name indicates, a buy-sell agreement outlines the terms under which parties may buy or sell a business in the event of a business owner leaving the company, through death or other means. There are a few things that a proper agreement should include, such as:
- Buyout triggers and terms
- Buyer prerequisites
- Buyout price calculation method
- Structure to avoid surprises with taxes
Along with these elements, the agreement must also abide by the general contract laws. A knowledgeable attorney can be helpful in establishing an agreement that covers all necessary aspects that relate to the particular business.
Covers the family
In cases where there is no clear instruction for how to handle a business after one of the owners passes, the family of the deceased may not receive the full respect or assets that the owner intended for them. To safeguard against this, the buy-sell agreement allows business owners to set aside stocks, require certain payment terms upon sale and denote various other stipulations they deem necessary.
Protects the business
Along with physical death, the buy-sell agreement can help to safeguard a company during the dissolution of a marriage. Having certain terms in place that denote the ownership of the company in the case of divorce can prevent disgruntled spouses from trying to gain control of the business. In the case where a person is part owner of the business with another party, the buy-sell agreement could be crucial.