When you are in business with a partner, or multiple partners, it’s vital to have a buy/sell agreement written up to involve all involved with the business. A buy/sell agreement will dictate when shares can be sold, for how much, and in what manner. Without this agreement, your business could face a large amount of financial issues upon a partner’s death, retirement, divorce, bankruptcy, sale, or incapacitation. The cost of a buy/sell agreement is small compared to its benefits and not having one could lead to a hefty sum in the long-run.
Frequently Asked Questions
Who needs a buy-sell agreement?
Disputes and confusion can occur within any type of company so a buy-sell agreement is necessary for virtually every type of business: corporations, partnerships, LLCs, proprietorships, and more.
What are the different types of buy-sell agreements?
Cross purchase agreement – With this buy/sell agreement, the co-owners agree to buy out the exiting or deceased owner’s share at a specified price.
Redemption style agreement – With this type of agreement, the company buys the exiting or deceased owner’s share. Usually, each owner will have a life insurance policy and the resulting money is to purchase the deceased owner’s share.
Hybrid agreement – This agreement is a mix between a cross purchase agreement and a redemption style agreement. It requires the remaining owners and business to purchase the interest of the departing owner.
How much do buy/sell agreements cost?
Agreements can be as complex or simple as you make them and may cost as little as a few thousand dollars – a small price compared to what it can save you in the long run. Disputes between business partners can become expensive when a buy/sell agreement is not in place. For specific numbers, consult with a Los Angeles business litigation attorney to learn about the options available to you.
While there are no disadvantages to having a buy/sell agreement in place, it can become confusing to choose between the different types of agreements. It’s important to contact a Los Angeles business litigation attorney experienced in buy/sell agreements so you can receive an agreement that’s molded to your specific needs.