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Do I need a buy-sell agreement?

On Behalf of | Sep 19, 2016 | Mergers & Acquisitions

As a Manhattan business owner, you know that circumstances can change in an instant. Accordingly, ensuring that your business is fully prepared for whatever waits around the corner entails having certain protections in place, such as a buy-sell agreement.

Forbes recommends that businesses of all sizes create a solid buy-sell agreement in anticipation of future shakeups. This is particular important for those commercial entities with multiple owners, as there may be some confusion about who exactly has a share in the business upon a co-owner’s death or retirement. These agreements can be applied to virtually every type of business, from proprietorships to corporations.  

There are two types of buy-sell agreements which may be useful to you. A redemption agreement stipulates that the shares of a former owner can be purchased by the business itself, while the cross-purchase agreement allows another owner to purchase the shares individually. In terms of pricing, you and the other owners of your business can determine which options work best for your enterprise. You can choose to create a formula for valuation or designate a fixed cost upon creation of the buy-sell document.

Cost reduction is one of the major benefits of buy-sell agreements. When ownership of a business is in contention, the cost of legal assistance can get quite expensive in a relatively short period of time. Conversely, devising an agreement that spells out ownership is comparatively inexpensive, and can also save you the hassle of contending with those who claim to own a part of your business. Buy-sell agreements are useful in other circumstances, such as the transfer of shares to an unapproved entity outside your company. 


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