Why Having a Buy-Sell Agreement Can Save Your Business from Disaster

Planning for eventualities or disasters can be the difference between success and failure for a business. One important planning tool for business owners and partners is a buy-sell agreement.

Buy-sell agreements lay out how each partner’s share of the business will be transferred after a partner's or owner’s death, retirement, or other exit. Some may, for example, have provisions for cases of serious illnesses or health conditions.

The primary goals of a buy-sell agreement are to ensure business continuity and prevent disputes. Once agreed upon, these contracts are legally binding.

Buy-sell agreements allow for a plan to be put into place before it’s needed. It allows all partners to be involved in the process and can keep a company within a closed circle.

In the case of a partner’s death, for example, there may be a life insurance policy that makes the purchase of the deceased partner’s shares possible.

What Buy-Sell Agreements May Include

Each buy-sell agreement should be tailored to a business’s specific needs and unique circumstances. These often include:

• A list of all current partners and owners, including the equity each one has in the company
• Ideally, a buy-sell agreement should be revised whenever there is a change in the business’s partners or owners.
• The company’s current valuation
• What events will trigger the agreement
• Who buys and acquires what assets after a partner exits
• Each partner’s exit from the business may have different contingencies
• For example, the plan for Partner A’s share is to split it between the remaining partners, with the proceeds of the buyout going to Partner A’s widow. Partner B, however, intends for his share to transfer to his son.
• How the other partners will pay for the departing partner’s share, e.g., a life insurance policy
• Any potential tax implications

A buy-sell agreement can help avoid any disruptions to a business. The key is for partners and owners to take the time to create a plan that works for their business’s situation.

Hire a Skilled Lawyer Who Knows Texas

If you own a business, the attorneys at Manfred Law can help you prepare for expected and unexpected events. Call us at 713-547-5460 or contact us online to schedule your consultation.