In case of an unpredicted problem at the end of a business agreement, it’s important to set yourself up with an exit strategy. Whenever you have a partner or multiple owners in a business, one of the most important, but often overlooked aspects of the relationship is planning for how it will end.
The more thought you put into your exit plan ahead of time, the smoother things will be when one of you finally does move on. Formally documenting your exit strategy is done with what’s called a buy-sell agreement. A buy-sell agreement outlines exactly what would happen to the business in the event an owner leaves the company for any number of reasons, or when one of the owners die or becomes incapacitated. As life is full of ups and downs it’s important to think through all the potential end routes that could happen. Thinking about questions such as: What if your partner gets divorced, and as a result, her former spouse becomes an owner of your business? What if one (or both) of you dies, or if one of you becomes incapacitated? What if you had to declare bankruptcy?
Getting a clear plan in place for a number of unpredictable events is a responsible move to make as you begin your business endeavor. Ultimately, your buy-sell agreement should proactively address any potential areas of conflict that could arise as a result of a partner’s departure. The whole goal of a buy-sell agreement is to minimize any disruption to your company’s operation or profits. An effective buy-sell agreement will not only detail how ownership of the company will be transferred should an emergency occur, it will also spell out the methods that will be used to assess the value of a partner’s share and provide the means for where the funding will come from. There are numerous ways to address valuation in your buy-sell agreement, such as using a set value that’s agreed-upon ahead of time, using a formula to determine value, or having an appraiser determine the fair market value. At Truest Law, we can help you determine the most foolproof method for valuing your business, and document the specific terms and conditions for executing the valuation into your buy-sell agreement. And we can even put you in touch with business appraisers we trust to assist you once you are ready to get the sales process started. Once again it’s important to never rely on generic online documents to fully protect you. Given all of the different variables involved and the fact that the survival of your business is at stake, you should consult an experienced attorney to ensure these essential agreements are properly created and all the possible contingencies are accounted for.
Whether you need a new buy-sell agreement created or want us to review an existing agreement, meet with us! We will support you to not only create clear concise agreements, but also implement an agreement process that will allow you to more effectively navigate the inevitable changes that take place in the relationship while dealing with conflict in a way that’s both healthy and productive.