Buy-Sell Agreements: Key Components
and Considerations

Executive Summary

A buy-sell agreement provides a means for business owners to help control the transfer of their ownership interests, avoid conflict, and protect their families.

Key Points

Triggering events - To avoid conflict and financial uncertainty, buy-sell agreements may dictate transaction triggering events--such as divorce, bankruptcy and employment termination--in addition to death and disability.

Methodology for valuing the business - Buy-sell agreements may contain a method for valuing the business that all parties can agree on and fully understand.

Buy-out terms - The specific timing and details of the actual buy out may greatly affect the success and efficiency of the transfer of ownership. The needs and goals of both the potential buyer and the seller can be taken into consideration.

Planning for liquidity demands - The transition of a business interest may be a sensitive time in its lifecycle, and may be a bad time for the business to have strains on cash flow. Buy-sell agreements may plan for the future liquidity demands created by the rights and obligations in the agreement.

Conclusion

Buy-sell agreements can allow you to express your goals as to how your business interests should be transferred in the future while creating limits intended to help you meet those goals. Buy-sell agreements can help set a plan that may help avoid conflict between owners and family members and create an efficient transition. Buy-sell agreements should be drafted with the advice of your legal counsel.

Do you have effective controls in place to provide for a successful transition of your business? 


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