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Buy-sell agreements are often used for partnerships

On Behalf of | Jan 28, 2022 | Business Litigation |

Even the most stable companies go through changes. It may be due to retirement, divorce, bankruptcy, or pursuing other opportunities. Business partners can plan for these inevitabilities, however, by including a buy-sell agreement alongside other essential business documents.

What is it?

Known as a business prenup or a buyout agreement, a buy-sell agreement outlines how changes in partnerships will happen. They can be drafted at any time, but it is often helpful to have in a file. It can provide peace of mind in that there is a predetermined plan of what happens when things change. It can address such issues as:

  • The percentage of the business owned by the partner
  • Whether a departing partner is bought out
  • Who can buy the departing partner’s share (outside people or preexisting partners)
  • What initiates a buyout
  • How to value the departing partner’s interest

Helps avoid uncertainty or disputes

Even if a buy-sell agreement sits in a drawer, it remains a clear reminder to partners of their business arrangement. It may hasten one’s departure. It can also act as a plan to keep the company open for business. It can help avoid time-consuming and costly disputes between the departing partner and the remaining team, or amongst the remaining team members. It can also help prevent mistakes that force a viable business to dissolve.

It is best to have a plan

Successful plans rarely go exactly how they were drawn up, nor does every buy-sell plan consider every eventuality. Nevertheless, it is a good starting point during a time of transition. They can be complicated or straightforward, but they should always reflect the foreseeable needs of the business and its partners.