Each business, or at least its ownership, has a life cycle and particularly with multiple owners it is important to consider at the business’ inception how the business may end or an owner leave. While the law provides a mechanism to end a business or one’s ownership, owners agreeing to some sort of buy/sell arrangement is preferred. Some of the factors to consider in drafting a buy/sell agreement include:
- Valuation. Any agreement should include a method or formula to value the business at the time of the sale that may change over time and contain discounts or reductions.
- Situation. The method and amount of payment may vary due to a particular exit circumstance, like an owner’s death, retirement or just leaving the business.
- Payment. Timing of payments, interest and security should all be addressed, as well as enforcement and default remedies.
- Sale Restrictions. Third party sales should be restricted and subject to the other owners’ approval.
- Confidentiality. Limit the disclosure of information to potential buyers and the public that could harm the business.
- Right of First Refusal. Allow the business or other owners the right to match third party offers and provide for pro rata purchasing.
- Funding. Address using business assets, life insurance or other financing, and determine what secures the balance due.
- Escape Clause. If no buyer is found and owners cannot agree, provide a mechanism to resolve the deadlock and avoid litigation.
- Costs. Identify the anticipated costs and who bears them.
- Taxes. Consider each parties’ tax implications.
- Protection. Consider protecting the business and its remaining owners.
If you have any questions or issues, please call on our experienced business lawyers to assist you.
