A buy-sell agreement is meant to protect the interests of the business and all the partners involved by establishing guidelines for selling the business shares. A company’s buy-sell agreement should dictate when shares can be sold, in what manner they can be sold, and the price at which they can be sold. The agreement will protect the business in the event that certain life changes occur, such as divorce, bankruptcy, death, or the dissolution of partnerships.
When you sit down with your partners to discuss a buy-sell agreement, there are a number of things you should consider to avoid future conflict. You should decide how to handle the sale of shares by a partner in the event of a partnership dissolution. Will a partner be allowed to sell shares to a third-party buyer, or will the partner be required to offer the shares to another partner before offering shares to a third party? Will the selling partner need the consent of the other partner(s) before selling shares?
A buy-sell agreement should also establish procedures in the event that a partner faces divorce. Will his or her former spouse be required to sell any shares received through the divorce back to the other partner(s)? If so, how will the value of these shares be determined?
Another important issue to discuss when drafting the agreement is how to proceed in the event of a partner’s death. Will the remaining partner(s) be obligated to buy the deceased partner’s stock from his or her surviving family members? Alternatively, will the family be obligated to sell the shares to the remaining partner(s)?
Finally, your buy-sell agreement should detail how you will manage a partner’s personal bankruptcy. Will the bankrupt partner be required to give the other partner(s) notice before filing for bankruptcy?
When drafting a buy-sell agreement, it’s a good idea to consult a corporate attorney, who can offer advice on avoiding conflicts.