When you are forming a business, the last thing that is on your mind is when you will sell it. You may even have the thought that you will “never” sell the business because you intend for it to get passed on.
Still, it is a question that can come up at any time. A partner can go through a messy divorce, or you could face a disability that keeps you from working. In any case, having a buy-sell agreement in place can be important for you and your business.
Here are answers to a few commonly asked questions about buy-sell agreements.
What does a buy-sell agreement do?
A buy-sell agreement will outline who will get what in the event the death of an owner or if the business is sold. This includes if there is a specific individual you want to take over the business if you are disabled and no longer able to carry out your duties.
A buy-sell agreement can also include a buyout agreement if your employees want to pay your heirs a fair value for the business and continue running it.
What kinds of businesses need a buy-sell agreement?
Any business can benefit from having a buy-sell agreement in place.
While you may think that a buy-sell agreement is only essential for businesses that have multiple owners, even sole proprietors can benefit from having a deal in place early in the formation of the company.
There can be any number of issues that come up where someone may want to buy out the business or where you are no longer able to run the business as you had planned. Having an agreement in place means having the peace of mind that the business will be valued and taken care of in the way you outlined in the agreement.
When does my business need one?
Since a buy-sell agreement covers events like death and disability that can be unpredictable, it is important to develop a buy-sell agreement early after establishing your business. A buy-sell agreement can also cover issues that could come up if you or a business partner goes through a divorce.
Creating a buy-sell agreement early can help you avoid some of the emotional issues that can come up. If you wait until your business needs a buy-sell agreement, there may already be some hard feelings on one side or the other. By creating one while everyone agrees, you can avoid emotions getting in the way of logical decisions.