Smith + Schwartzstein
Located In Morristown, NJ and New York, NY

The importance of a buy-sell agreement shouldn't be overlooked

Your business is important to you, and against all suggestions, you opened it with friends. You want to make sure you can buy them out if they don't get along with you later and need to know that there's a way to obtain full ownership if the need arises.

One option is a buy-sell agreement. A buy-sell agreement could be a good idea for your business, but what is it and how does it work? It's a simple reality that there are things that could go wrong in your life or in the life of your business partners. A buy-sell agreement answers those "what-if" questions that may come up, like, "What if my partner suddenly dies? What if we disagree on how to run the business? What happens if one person wants to step down and give up his or her shares?"

It's a wise idea to have a buy-sell agreement drawn up as soon as you can. The arrangement establishes a few things for you. First, it establishes who can become an owner of the business. Next, it defines how the business continues if certain trigger events occur. Next, it allows the business to be sold by making the sole proprietorship something that can be transferred. Finally, it does make you and your partners value the company, which helps you determine how to increase its worth.

Buy-sell agreements are normally funded, which helps protect those left behind when a shareholder dies. For example, if your partner passes away, a life-insurance policy pays out to you and then can be used to purchase his or her shares directly.

Source: Mutual of Omaha, "Why a Buy-Sell Agreement Makes Sense for Your Business," accessed May 25, 2018

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