How to Write a Buy-Sell Agreement

If you are in business with a partner or partners then you definitely need to write a buy-sell agreement (also referred to as a buyout agreement). The buy-sell agreement protects the interest of the business and all the partners involved by providing guidelines for selling the business shares. It is basically a business prenup. The buy-sell agreement should dictate when shares can be sold, in what manner they can be sold, and at what price they can be sold. The agreement will protect the business in the event of divorce, death, bankruptcy, or dissolution of partnerships. Here are some factors to consider when you sit down with your business partner(s) to write a buy-sell agreement.

Difficulty: Moderate

Instructions

Avoiding Conflict with a Buy-Sell Agreement

1. Decide how to handle the sell of shares by a partner in the event of a partner dissolution. Will a partner be allowed to sell shares to a third-party buyer? Will the partner be required to offer the shares to another partner(s) before selling to a third-party? Will the partner(s) purchasing the shares be required to meet the third-party’s monetary offer? Will the selling partner need the consent of the other partner(s) before selling shares?

2. Establish the protocol for a divorce. If one of the partner’s gets divorced, will his former spouse be required to sell any shares received in the divorce back to the other partner(s)? If so, how will the value be determined?

3. Agree on how to proceed in the event of a partner death. Will the remaining partner(s) be obligated to buy the deceased partner’s stock from his surviving family? Will the family be obligated to sell the shares to the remaining partner(s)?

4. Determine how to manage a partner’s personal bankruptcy. Will the bankrupt partner be required to notify the other partner(s) before filing for bankruptcy?

5. Set up the terms for a buyout in the scenario that a partner(s) needs to buyout another partner but does not have the monetary means to do so without bankrupting the business. How much of an initial down payment will be required to initiate the buyout? What will the interest and terms be for paying the remaining balance?

Tips & Warnings

• It is a good idea to speak with a business counselor before writing a buy-sell agreement.
• It is never too late to write a buy-sell agreement. It is best if the agreement is written before going into business, but anytime is a good time to better manage your business. A buy-sell agreement can save you from time consuming and straining lawsuits.

Resources

• Visit SCORE for Free Business Counseling