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Why Your Business Needs a Buy-Sell Agreement

By: Thomas Kalil

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If you own a business, whether as a partnership, a corporation, or a limited liability company, you need to make sure your business can keep running in case one of the owners is no longer able to be part of the company. The easiest way to do this is with a buy-sell agreement.

A buy-sell agreement is a contract that outlines what happens if a business owner needs to transfer his or her interest in the company. The events that cause an owner to need to transfer their interest should be clearly set out in the agreement, and can be anything the owners agree to. For example, the agreement would typically state that if an owner no longer wishes to be part of the business, dies, gets divorced or declares bankruptcy, their interest in the business would be offered to the other owners at agreed upon terms set out in the agreement.

The agreement can also be even more specific, stating that an owner who reaches a certain age must sell their interest in the business and must retire, or that an owner who doesn’t work in the business a certain number of hours must sell their interest to the other owners who are working that much.

The agreement should also state who can purchase the interest. If a business has two owners, the answer is pretty obvious, but for larger businesses, the agreement should set out eligible purchasers.

The point of a buy-sell agreement is easy to understand. Business owners who have put hours of time and money into a company need to be able to control who else owns an interest in that company when certain events, such as the death of an owner, occur. A carefully prepared buy-sell agreement can keep a company from falling apart in tragic circumstances, and is an essential document for any business with multiple owners.

This article is only intended to provide general information and does in any way constitute legal advice. Please contact your legal professional to assist you in these matters.