The worse case scenario has occurred. Your business partner that you have worked with for thirty years passes away. What happens now? Who owns their share of the business you built together? Who gets to make decisions? How much is their share worth? At a time of grief, the last thing that you want to do is to have to worry about all of these questions and more.
By drafting a buy-sell agreement, you and your business partners can answer these questions and seek to make a bad transition as smooth and easy on the survivors as is possible. A buy-sell agreement is a legally binding contract which helps answer these questions before they become necessary. It primarily governs three issue areas that arise when a business partner passes or is unable to work anymore: (1) what events trigger a buyout, (2) who can purchase interest in the company, and (3) what price should be paid for the interest.
Events that could trigger a buyout traditionally include the death or permanent disablement of a member – but can also include provisions dealing with divorce or if a member chooses to/is forced to leave the company for any reason. In the case of one of these events, it is important that a buy-sell agreement dictates who can and cannot purchase that member’s interest in the company. For example, what if the other members want to retain the utmost control of the company – they could include in the buy-sell agreement a provision that states that an outside person or entity cannot take control of the departing members interest, but do have the right to be paid as an owner or to be bought out on predetermined terms.
Buy-sell agreements are vital in the case of a business with multiple co-owners – they can save a lot of time, grief and money during already stressful times. If you have any questions about your business or creating a buy-sell agreement for your own Virginia small business, please contact the business attorneys of Winslow & McCurry at (804)432-1382.
