Buy / Sell Agreements

It is important to draft a buy/sell agreement if you are starting a business with a co-owner. This agreement provides for the sale of stakes in a business to other owners in case of various contingencies, such as one owner quitting. When you start a business with a partner and decide to create a buy/sell agreement, it may be sobering to realize how many things may go wrong. An experienced Grand Rapids and Traverse City business attorney can help make sure that your partner and you think through the possibilities and provide for price points, contingencies, and other matters in a final buy/sell agreement.

Buy/sell agreements are formal, legally binding contracts that are consulted by owners of businesses in case various triggering events arise. Triggering events may include an owner dying, quitting the business, getting divorced, or becoming incapacitated. The co-owners or partners of the business may be interested in working with each other but not necessarily with other family members or others who could come into the picture in case of death or disability.

Buy/sell agreements typically address triggering events that require an owner of the business to sell or offer to sell, set a purchase price for business interests, and provide payment terms. The agreement should provide for such details as a down payment, the number and amount of installments, and the interest rate to apply if an installment sale takes place.

The buy/sell agreement should be in writing and address a full range of triggering events, as well as how to address those events. Provisions are often made to sell an outgoing partner's share only to the remaining owners, or to provide for a series of steps to take when selling shares. For example, a buy/sell agreement may include a right of first refusal and an obligation of first offer, and it may provide a fair price in advance to anyone who chooses to sell shares. The agreement may address what happens when partners retire or hope to check out of the business for another reason. The agreement should include provisions that prevent people outside the business from getting too much power and affecting a company in a way that does not serve its best interest.

Advantages to creating a strong buy/sell agreement include developing a transition plan that may make things go more smoothly when the business is transferred, creating a market for a selling partner's interest in a closely held business so that funds may be generated for an owner's family in case of their death or disability, and establishing a value for the purposes of estate tax. There are advance-planning benefits for all of the owners when a proper and thoughtful buy/sell agreement is created.

Buy/sell agreements may themselves be the subject of litigation. It is not possible to plan for every contingency, and in some cases emotions run so high that a partner does not follow the agreement. However, an experienced Traverse City or Grand Rapids lawyer may help ensure that your agreement provides for all likely events, that your intentions are accurately formalized, and that future disputes are minimized. If you are building a business with others, you should discuss contingencies and develop a buy/sell agreement. The Neumann Law Group also represents clients in Petoskey, Warren, Holland, Muskegon, Saginaw, Detroit, Kalamazoo, Lansing, Flint, and Ann Arbor, as well as areas throughout the Upper Peninsula. Contact us at 800-525-NEUMANN or via our online form to set up an appointment with a corporate governance attorney.