Business partnerships are like a marriage. If the number one cause of divorce in marriage is not seeing eye-to-eye on finances, imagine how exasperated a relationship built on financial goals can get. This is where a business contract can be helpful in your partnership.
In all my litigation experience related to dissolving business partnerships, there is only one eternal truth: fights happen. Then, small fights turn into bloody fights and the thing that bleeds the most is the business everyone was so happy to bring alive in the first place.
However, these fights, or at least the resolution thereof, can be predetermined and easily arranged for. Ultimately, helping to ensure a smooth transition when the breakup becomes inevitable. Much like a prenuptial agreement between spouses, a Buy-Sell Agreement between shareholders, partners, or LLC members and drafted by a contracts lawyer can be a crucial document for the future of your business.
How a Buy-Sell Agreement Can Benefit Your Business
A Buy-Sell Agreement is the pre-planning device that dictates how a business or the other partner(s) will deal with internal problems. These may include the death, incapacity, or other departing event of a director, member, or partner. They may even include the event whereby a party wishes to sever ties due to a soured relationship between remaining parties.
This agreement is typically drafted to define three concerns:
- Who will purchase the departing interest, including whether the business will be the buyer
- What events will trigger the document’s authority to govern the business contract—death, bankruptcy, a party’s desire to leave the business, etc.
- How the value of the interest will be calculated, including payout duration to keep the business solvent during the split
Luckily, many hand-crafted Shareholder Agreements, Partnership Agreements, and Operating Agreements already contain a Buy-Sell provision. However, most of the agreements found online haven’t been updated in a bit and may lack the necessary details to effectuate a smooth transition.
Thus, a stand-alone Buy-Sell Agreement can always be drafted and utilized to protect the business and the remaining parties’ interests during the process.
Take a second and review your agreements to see if you’re covered in a departing event. If you’re not, schedule a consultation immediately to set up a business contract.