What Every Business Owner Should Know About Buy-Sell Agreements

If you own part of a business, the subject of a buy-sell agreement has probably come up with your co-owners, and if it hasn’t, then it should.

The purpose of a buy-sell agreement is to provide for an orderly transition of ownership interests when certain specified events occur, e.g., an owner wants to sell his or her interest in the business, or an owner dies, becomes disabled, or retires. The point of a buy-sell agreement is to keep the business running smoothly when an owner desires or is forced to sell his or her interest in the entity. Typically, a buy-sell agreement controls the circumstances under which an owner may sell his or her interest, who is a permitted buyer, and how the price paid will be determined.
 
Among the many benefits of having a buy-sell agreement, are that they:
 

• Allow the remaining owners to determine with whom they will work and share control of the entity;
• Prevent outsiders or heirs, whose interests may conflict with those of the entity or the remaining owners, from obtaining an ownership interest;
• Ensure continuity of management and control by the remaining owners;
• Provide for the orderly liquidation of the owners’ interests in the event of death, disability, retirement, or other forced or voluntary withdrawal;
• Prevent the continued involvement in the business of retired or inactive owners;
• Create a market for the shares of deceased, retiring, or withdrawing owners;
• Generate cash to pay death taxes and estate settlement costs;
• Fix the value of the interest for estate and gift tax purposes; and
• Prevent the loss of an S corporation election by preventing a transfer of the interest to an ineligible shareholder (e.g., a corporation).

 
Please contact my office at virginia@virgielaw.com or 530-802-0640 if you would like us to help you put in place a buy-sell agreement for your business.

Virginia Ryan provides business law and estate planning services to clients in Northern California, including Auburn, Grass Valley, Nevada City and Truckee.