Would you like your business partner’s ex-wife or ex-husband to join you in running your company? If your business partner filed for personal bankruptcy, would you feel comfortable if a bank became your business partner? Without a formal buy-sell agreement in place, you could face these types of scenarios, which could disrupt your business and diminish its value.
A buy-sell agreement outlines the exit strategy and ownership succession plan in the event of a death, divorce or disability. These are circumstances that you can somewhat anticipate, but there are unforeseen circumstances, such as divorce, death or partner dispute. A buy-sell agreement gives business owners the opportunity to discuss potential scenarios rather than forcing owners into costly litigation down the road.
A buy-sell agreement should be created well before it’s needed. It’s easier to develop an agreement when all the stakeholders agree. By the time circumstances necessitate the use of a buy-sell agreement, the parties could have other objectives in mind, making it harder to reach agreement on various terms. It’s never too early to create a buy-sell agreement, but note that as the business evolves, business needs change, and therefore certain provisions of the agreement will require periodic review and revision.
A buy-sell agreement should contain a business valuation provision. Some business owners want to incorporate a multiplier of earnings formula for valuing the business, such as “five times the earnings before interest and taxes.” However, the formula may not reflect the true value of the business. Business owners are often better protected by a provision that states a business valuation expert will determine the appropriate method to value the business.
A buy-sell agreement should contain certain ground rules. For example, it should define who may or may not buy into the business. This is helpful when owners want to permit only certain family members to buy ownership and control decisions. An agreement provision that outlines the events that will trigger the sale of the business can prevent third parties from taking control of the business.
Consult the Tampa Buy-Sell Agreement Attorneys at Lieser Skaff Alexander
Our experienced business attorneys help new and established Florida businesses create comprehensive buy-sell agreements that help avoid disputes, maintain business value and ensure a seamless transition of ownership in the event of a death, disability, divorce or departure. We also help business owners go over their existing buy-sell agreements to make sure they are up-to-date and properly address present business needs.